ANDREW W. MELLON.

SECRETARY OF THE TREASURY
1921 - 19327

.A swarm , POLICY

LAWRENCELEO MURRAY m

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thesis entitled
ANDREW W. MELLON,

SECRETARY OF THE TREASURY, 1921-1932
A STUDY IN POLICY
presented by

Lawrence Leo Murray III

has been accepted towards fulfillment
of the requirements for

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ABSTRACT
ANDREW W. MELLON,

SECRETARY OF THE TREASURY, 1921-1932
A STUDY IN POLICY

by

Lawrence Leo Murray III

The direction of this dissertation has been to ex-
amine, interpret, and evaluate the Treasury career of Andrew
W. Mellon, with particular emphasis on his role in policy
formation and development. Because a major goal of the Re-
publican administrations in the Twenties was economy in
government, he was involved in varying degrees with nearly
every problem or issue that confronted the federal estab-
lishment. Rather than attempt to deal with every factor,
this author has focused attention on those defined by the
Treasury and its chief as the more paramount. Included are
taxation, foreign and domestic debts, prohibition enforce-
ment, public construction, the Secretary's role as a poli-
tician, the stock market spiral, crash, and subsequent con-
sequences, and the general administration of the Treasury
Department. Interwoven with these are a series of related
issues such as the tariff and Federal Reserve Board activ-
ities. At all times, however, the attempt has been to main-

tain the Secretary as the center of attention and to probe

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ILawrence Leo Murray III
issues and problems as they relate to him.

The methodology employed.has been the traditional ap-
proach of the historian, investigation of the relevant
primary and secondary sources, and as far as is possible
in the social sciences, the scientific method has been
adapted to the research. Though the subject requires
some use of figures and statistics, a quantitive or be-
havioral approach has not been employed. The principle
source materials were the Official Correspondence of the
Secretagy_of the Treasury, Record Group 56, National
Archives and the Annual Report of the Secretaryof the
Treasury, 1921-123 . Because the heirs have declined public
access, the Personal Papers of Andrew‘W; Mellon.were not
consulted. Other sources such as newspapers, magazines,
personal papers and memoirs of related figures, and a wide
variety of secondary works were also employed.

In general, the conclusions drawn are somewhat at var-
iance with those generally accepted. Investigating taxa-
tion, for example, the evidence revealed that no effort
was made to shift the burden. Instead, the common man paid
little or no taxes, and the rate of taxation was lowered
on the middle and upper classes in the face of government
economy, an expanding gross national income, and with a
design for encouraging capital investment. A constant
policy of domestic debt reduction was pursued, and in the
area of foreign debts, the Secretary followed a middle of

the road course between the cancellationists and full

payment you?
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Lawrence Leo Murray III
payment groups. Prohibition was not zealously enforced,
but Mellon endeavored to do his best within the economic and
political limits set by Congress, while attempting to have
the onerous task transferred to the Justice Department. is
for the stock market, the sources indicate that the Secre-
tary was not directly a major contributor to the specula-
tive mania, but his response to the crash was antiquated,
grounded in a nineteenth century laissez-faire philosophy.
His administration of the Treasury Department was found to
be very business-like, helping to streamline and modernise
operations. The project in which he took the most personal
pride was beautification of the city of Washington, and
much of the physical plant of the government today, partic-
ularly the Federal Triangle, was his creation.

Of all the conclusions, the most important,and the
one most in divergence with tradition, is that related to
taxation. An effort was made to examine that issue in a
statistical fashion so as to separate fact from.rhetcric.
Many conclusions must be tentative because of a shortage
of collateral studies and the lack of the personal papers,
but it is hoped that those pertaining to taxation will
approach the definitive.

 

ANDREW W._MELLON,
SECRETARY OF THE TREASURY} 1921-1932
A STUDY IN POLICY

by

Lawrence Leo Murray III

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements

for the degree of

DOCTOR OF PHILOSOPHY

Department of History

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ACKNOWLEDGMENTS

As an individual makes the transition from student to
fledgling historian, the doctoral dissertation serves as an
announcement of his professional debut. That first scholarly
expression is necessarily the product of the efforts, assis-
tance, and guidance of many others beyond himself. To my
dissertation director, Dr. Madison Kuhn, is owed a debt that
could never be adequately paid. His tremendous grasp of the
sources and uncanny ability to question and probe my evi-
dence and argumentation and to expose its weaknesses and
strengths as well as to suggest new directions provided for
both assistance and stimulation. Without his friendship and
encouragement, the project may have floundered in inertia.
To the other members of my committee, Dr. Robert E. Brown
and Dr. Thomas Bushell, is offered an expression of appreci-
ation for their training in the science of historical in-
quiry and the art of writing, as well as for their helpful
comments as the dissertation matured. All three have pro-
vided a standard of excellence in their own scholarship that
I sought to emulate.

My wife's contribution in producing the dissertation is

inestimable. Her frequent suggestions, not always accepted

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in the best spirit, revealed many weaknesses and her cler-
ical talents were irreplacable. To her and my two
daughters, the women in my life, I would like to dedicate

my first venture into the world of scholarship.

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11 F303”! XIX;

TABLE OF CONTENTS

ACKNOWLEDGEMENT................

INTRODUC TION O O O O O O O O O O O O O O O 0

Chapter
I
II
III

4

VI
VII
VIII
IX

THE UNKNOWN SECRETARY . . . . . . . . .
POLICY MING O O O O O O O O O O O O O

PROTECTING THE TREASURY AND REASSERTING
POLICY 0 O O O O O O O O C O O O O C O

WNIZHG AMERICA . . . . . . . . . .
ZENITH ................
FROM KINGMAKER TO ALBATROSS . . . . . .
CRISIS, CONFUSION, COLLAPSE . . . . . .
THE MAN WHO STAYED TOO LONG . . . . . .
INRETROSPECT .............

BIBLIOGRAH-I ICAL mSAY O O O O O O O O O C O O 0

iv

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77
110
153
201
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276
296
311

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INTRODUCTION

Several years ago, Burl Noggle issued something of a
challenge to historians interested in America's recent past.
In a brief but penetrating article, "The Twenties: A His-
toriographical Frontier," Professor Noggle pointed to that
period as one in the process of revision and amplifica-
tion.1 Commenting on what had already been done, he sug-
gested a variety of questions and figures that would af-
ford scholars with many and varied opportunities to launch
out in new directions. As a beginning graduate student in-
terested in more contemporary history, the Noggle essay
stimulated me to search the new frontier for a suitable re-
search topic. Encouraged by my dissertation director, who
also thought the Twenties to be an opportune area, I probed
the issues and personalities, settling on some facet of the
long business-government career of another Pittsburgher,
Andrew W. Mellon.

A cursory examination of Mellon found that little had
been done, but that the historical community was fairly

unanimous in its interpretation of him as a man of wealth

 

1Journal of American History, September, 1966,
pp. 299-3Ih.

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who used his post to conserve his wealth and that of his
peers. Further investigation indicated that this stereo-
type was questionable and my curiosity to pursue Mellon's
government service was intensified. The reason for this
stereotype and for the lack of intensive examination soon
revealed itself--his heirs were withholding his personal
papers. Faced with what appeared to be an insurmountable
handicap, my dissertation director suggested that other
source materials, government records and the like, might
offer an adequate detour. Joseph Brandes in his study of
Herbert Hoover at the Commerce Department, Herbert Hoover
and Economic Diplomacy (Pittsburgh, 1962), had overcome a
similar obstacle and done a very credible job. Discover-
ing that there was a variety of primary and secondary
sources available and with more coming out regularly, I
launched out in my new direction.

As was suspected in the early days of the project, the
conclusions drawn were somewhat at variance with those gen-
erally accepted. The stereotypes and generalizations
weakened when applied to the individual, and Mellon appeared
as a complex figure with assorted motivating forces and
goals. As is so often the case, the individual was not as
consistent as the broad statements would indicate. The
general character of the study grew in the direction of re-
visionism, but the intent was not to simply defend or re-
habilitate. Nor was the intent to destroy generalizations,

but to expand upon them, accepting those that the evidence

 

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supported and modifying or discarding those that it did
not. In some instances, new generalizations were substi-
tuted for old. It is hoped that the reader will find the
discussion and conclusions interesting and perhaps stimula-
ting for much needs to be done on the issues and personali-
ties surrounding Mellon to fully understand and appreciate
the man and the period.

Lacking the private papers, one cannot, of course, make
any claim at definitiveness. But if one looks upon histor-
ical research as a synthesis, the product of thesis and anti-
thesis, the reader is asked to accept this different inter-
pretation as part of the drive toward synthesis. The mere
passage of time has enabled me to gain a perspective that
was not possible before, to look at this man in a day not
colored by partisan debate over his performance. Further
generations with more perspective and more resources to call
upon may discover weaknesses, but part of the thrill of
being a historian is to try to come to grips with a subject
at a time when revelations about that subject can be of
assistance to society, even if the final word cannot be
said. Yet one is forced to ponder the question, when can

the final word be said?

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CHAPTER I
THE UNKNOWN SECRETARY

Just three days before he was to take that short ride
up Pennsylvania Avenue from the White House, President-
elect Warren G. Harding confirmed the fact that Andrew
Mellon would be his Secretary of the Treasury. The announce-
ment ended months of speculation as to who was going to re-
ceive that prestigious Cabinet position. Newspaper reporters
had expected the nomination much earlier, at least before
Harding went on his southern vacation in early February.

The in-coming Republican administration had pledged itself
to an austerity program and it was thought that the Treasury
post would be one of the first filled, thus allowing plenty
of time for the President-elect and his appointee to discuss
thoroughly various policy problems before assuming office.
Instead, the amiable Ohioan confounded expectations by wait-
ing until the very last moment before divulging his prefer-
ence.

When the disclosure came that A.W. Mellon was to be in
the first Republican cabinet in eight years, it was not
without some hesitancy on the part of the President-elect.
The press was not summoned for formal notification. Instead,

the reporters had to extract a confession from Harding after

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presenting him with information they had which pointed to

the Pittsburgh banker.

Mellon himself had unintentionally alerted the press
when he visited the Treasury Building on February 28. Intent
on quietly touring the building and perhaps conferring with
the outgoing Secretary, David F. Houston, Mellon was unable
to avoid the Washington reporters. To his further embarrass-
ment, the Secretary-designate lost his way twice while exam-
ining his future headquarters and had to postpone his meet-
ing with Houston who was out of the building at the time.
One of the Assistant Secretaries, S. Parker Gilbert, took
Houston's place in chatting with Mellon.l That he met with
Gilbert instead of Houston proved to be an unusual stroke of
fate, for Gilbert was retained by the new administration
and ultimately was made the first Under—Secretary of the
Treasury.

Why was Harding hesitant in confirming Mellon's selec-
tion? Was it that he had not decided until March, or did
he for some reason fear revealing his choice? None of the
other Cabinet nominations, except perhaps Herbert Hoover's
to the Commerce Department, assumed such an aura of mystery.
To understand why Mellon, we must return to the immediate
post-election period of November and December, 1920.

The formation of a Cabinet was bound to be a difficult

task at best. The Republicans had recaptured the White

1New York Times, March 1, 1921.

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House after two terms in the wilderness and a great many
party workers sought to participate in dividing the Spoils
of victory. Those who expected the largest share were the
conservative Senators who had worked together to defeat
Wilson's Treaty of Versailles and to nominate Harding at
Chicago. Penrose, Knox, Lodge, Brandegee and the others
looked upon the Marion editor as their creation and they
expected him to be responsive to their wishes.2 In choosing
his official family, no President has ever had a completely-
free hand and Harding was more restricted than most. His
victory over Governor James Cox of Ohio was the most decisive
to that time, but the price of the presidency was to prove
high in terms of independence of action.

Before pressure was applied from the Congressional
wing of his party, Harding's choice for the Treasury port-
folio was Charles Gates Dawes.3 Currently president of his

own bank in Chicago, the Central Trust Company of Illinois,

 

2Andrew Sinclair, in The Available Man (New York: The
Macmillan Co., 1965), propounds the thesis that Harding was
his own man and was not the creation of the senatorial cabal.
Though he somewhat persuasively argues his case, Sinclair does
not completely destroy the older interpretation. The circum-
stances surrounding the Mellon selection will illustrate that
rmmh.can.still be said for the first explanation.

3Charles G. Dawes, The First Years of the Bud et of the
United States (New York: Hayes and Brothers, I923i, p. I;
Bascom N. Timmons, Portrait of an American: Charles Gates
Dawes (New York: Henry Holt and Co., 1957). pp."§—"—'oo-.03; H.L.
Stoddard, As I Knew Them (New York: Harper and Sons, 1927),
P. 522; and Samuel—Hokans Adams, Incredible Era, The Life and
Times of Warren G. Harding (New York: Capricorn Books, 1939},
P. I93. .

 

 

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Dawes had gained something of a national reputation as
General Pershing's supply officer with the Allied Expedi-
tionary Force. His front line political experience was lim-
ited to the position of Comptroller of the Currency in the
first McKinley administration. Harding had met Dawes at the
Republican Convention, two days before he received the nomi-
nation. At Chicago, Dawes was actively campaigning for
Governor Frank Lowden of Illinois.

Shortly after the election, Dawes was invited to Marion.
Informing Dawes that he had been impressed by his article
"How a President Can Save a Billion Dollars," Harding sug-
gested that the Chicago banker join his new Administration
and use his ideas to implement an economic austerity program}1
Dawes politely informed the President-elect that he was in
sympathy with the idea of economy in government, but that the
Secretary of the Treasury was the wrong man to do the job.5
A sound program, Dawes argued, could only function through a
budget system, something that Wilson had recently vetoed be-
cause of a technicality. Furthermore, the chief budget officer
should be a Presidential assistant, working directly under
the President and not as a co-equal in the Cabinet. If aus-
terity was to be accomplished, it must come from the top down.

At a second meeting in January, Dawes formally declined the

 

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Gates Dawes, 202.

 

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Treasury post, though he did volunteer to serve as Budget
Director if and when a budget system was instituted.6 His
rejection was not as gracious as his biographer might have
us believe, in that several factors intervened to almost
force a negative response. In an appearance before a Senate
investigating committee, he assumed a very defensive attitude
and his vitriolic responses put him in the bad graces of the
Senate.7 Secondly, the mayor of Chicago, William H. (Big
Bill) Thompson, a major force in Republican circles, came out
against the inclusion of either Dawes or Lowden in the Cabinet.8
Finally, the Senatorial cabal was making its influence felt
in Marion. Dawes was aware of the growing pressure, for
Harding had told him that objections were being raised to the
inclusion of Hoover in the Cabinet.9

The press was not ignorant of the fact that Harding was
under great pressure, but they did not connect Dawes with the
strain until early February.10 Up to the fiery scene in the
Senate, they had considered him a virtual certainty. When it
became apparent that Dawes was net the choice, the newsmen
turned their attention to Charles D. Hilles and John Hay

Hammond, both of New Yerk. Mellon was mentioned, but his

 

6Timmons, Charles Gates Dawes, 202.
7New York Times, February 7, 1921.
8New York World, January 12, 1921.
9Timmons, Charles Gates Dawes, 201.

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candidacy was not taken seriously.

The first inkling that Mellon was a contender for the
Treasury post came New Year's Eve. Senator Philander Chase
Knox (R.-Pa.), dean of the Senate and an integral member of
the Chicago cabal, made public a meeting that he had had with
the President-elect. The principle reason for his journey
to Marion, he said, was to cut short any rumors that he was
interested in returning to the State Department. Instead of
offering himself, Knox announced that he had urged Harding
to appoint his friend, Andrew W. Mellon, as Secretary of the
Treasury.11 In spite of Knox's prominence in party circles,
none of the newsmen took the proposition seriously. Their
favorite was Dawes, not the unknown Pittsburgher.

The decision to project Mellon as a Cabinet officer was
not a hasty one. The idea seems to have originated during
the campaign when John W. King, Republican National Committee-
man from Connecticut and chief of the Wood forces at Chicago,
suggested it to Senator Boies Penrose (R.-Pa.). When they
talked of it at Atlantic City, Penrose scoffed at the ides,
but apparently never put it out of his mind. Penrose broached
the question with Mellon who responded somewhat lukewarmly.
Sometime after the election, the senior Senator from Pennsyl-

vania sent his personal representative, Joseph Grundy, to

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Marion to make his wishes known.12

Knox had also discussed the matter personally with
Mellon during the Christmas holidays. Both Senators wanted
to be certain that their man was available. It therefore
came as no surprise to Mellon when Knox telegraphed.him
January 1, that Harding was considering him, The President-
elect followed up the Knox telegram with one of his own,
inviting Mellon to Marion for a conference.13

An mmusing vignette is drawn of Mellon's first encounter
with the Marion editor.1h Arriving at the railroad station,
Mellon.was chagrined to discover that no one was there to
meet him.and there were no cabs. Taking his bags in hand,
he walked the mile or so to the Harding home, something of
a task for a.man sixty-five years old. At the house, he
introduced.himself to the receptionist and took a place in
the waiting room where he sat for the better part of an
hour. Once it was discovered who he was and why he had
come, Mellon was immediately ushered into the office, though
he had.told.the receptionist that he did not mind waiting
if the President-elect was busy.

As he was about to leave washington for a new assignment

12A.H. Hutton, The Penns lvanian: Jose h R. Grund
(Philadelphia: Dorrance andg3T:_I95277—57_I79_Efid—W7f¥
Mellon, ggggo Mellon's Sons (n.p., l9h8), pp. 397-99.

13Mellon, Mellon's Sons, pp. 395-99.

 

 

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as Ambassador to Great Britain in February, 1932, Mellon
recounted the story of his first meeting with the twenty-
ninth President. The then outgoing Secretary remembered
telling Harding that he could do better:

On leaving, I said there was just one favor I

would like to ask; that you will find someone

who can take the position and I will be left

out. I really didn't want to come to Washington.

I did not want to absolutely refuse. There

really w s no substantial reason why I should

refuse.1§
Mellon also noted that even if he was inclined to accept,
he believed that his business connections would make him
ineligible according to the requirements of a 1789 statute
which stated that the Secretary of the Treasury shall not
"directly or indirectly be concerned or interested in carry-
ing a business of trade or commerce...." As we evaluate the
issue of Mellon's selection, it seems that an old man was
caught up in a fit of modesty and a nostalgia as he reminisced
on the happenings of a decade previous. He classified himself
as so many politicians do--the reluctant candidate.

The matter of the legal impediment was also pointed out
to Knox. Claiming that he had dealt with similar statutes
while Attorney-General under Theodore Roosevelt, Knox re-

assured Mellon that he was eligible to hold the office. To

add weight to his argument, the one-time attorney for steel

 

1SNew York Times, February 5, 1932 and W.L. Mellon
aJeo describes a memorandum that A.W. Mellon wrote that says
asubstantially the same thing. Mellon's Sons, hOO-Ol.

 

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12
magnate Henry Clay Frick retained the Washington law firm of
Faust and Wilson to investigate the situation. Their con-
clusion concurred with that of Knox, noting that Mellon need
only resign his sixty-three directorships and sell his bank
stocks to meet the 1789 law and the requirements of the Fed-
eral Reserve Act. Nevertheless, the issue of his eligibility

to hold office was to crop up again and again.16

If anything was holding Mellon back, it was probably
this old law. He obviously would not wish to be nominated
and then have the Senate refuse confirmation. This had hap-
pened once before in 1869 when the Senate rejected President
Grant's nomination of Alexander T. Stewart, a New York dry
goods importer. With Penrose and Knox on his side, it was
not likely that the Senate would balk, but it was not a pos-
sibility that could be overlooked.

While Knox was trying to shore up Mellon's resoluteness,
others were making known their support. George S. Oliver, a
Pittsburgh newspaper owner and Knox's predecessor in the Sen-
ate, and former Representative James F. Burke went to Marion
January 15 to express their desire to see their friend in
Washington.17 Also pushing for Mellon were the small town
bankers of western Pennsylvania and Eastern Ohio, men who

‘were no doubt friends of Harding and who were cognizant of

 

16Mellon, Mellon's Sons, MOI-02.

 

17New York Times, January 15, 1921.

the fact that '
b13138 power 2

Over six 1
View with Hard
132:, February
from contentio
ground. Hello:
hesitancy, cou‘
vertently appe
lacept an Obsc

Harding w
in” and Penro
Vince Harding?
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Out, th°u8hg o:
DirectOr. A a

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13

the fact that the Mellon National Bank was the principle
banking power in their area.18

Over six weeks intervened between.Mellon's only inter-
view with Harding, January 7, and the proffering of the posi-
tion, February an. In the interim, Dawes had been removed
from.contention and Hilles's candidacy never got off the
ground. Mellon seemed to have a clear field,.but Harding's
hesitancy, coupled with the Pittsburgher's anonymity, inad-
vertently appeared to rule him.out. The newspapers could not
accept an obscure out-country banker as the logical choice.

Harding was balking. Mellon had been brought around to
Knox and Penrose's way of thinking, why could they not con-
vince Harding? For one, perhaps he was hoping for a change
or heart by his original choice, Dawes. This can be ruled
out, though, on the basis of his agreement to serve as Budget
Director. A second possibility Harding pointed out to his
friend Harry Daugherty and Senator Walter Edge (R-N.J.).19
Would the public accept a man of Mellon's wealth in the
Cabinet? Daugherty thought there would be no problem, that
Mellon's wealth would be an asset rather than a liability.
A.third alternative was the growing criticism.of the Pitts-

burgh banker on account of his holdings in a liquor concern.

 

18Ibid., February 27, 1921.

19Harry Daugherty, The Inside Stud of the Hardin
Tra ed (New York: The Churchill 50., l§325, p. 75 and
lfla.ter Edge, A Jerse n's Journal (Princeton: University
Press, 1914.8), p. 121.

 

  
    
    

Having a liquor
prohibition was
29 President 0 .
League, Willie:
tary, asking to;
355E“ in the

Partially blunt
all notability
to the JuBtice

he“? helped t

at the 3:1 thfiq

1h

Having a liquor manufacturer as chief enforcement officer of
prohibition was viewed skeptically by some dry organizations.
The President of the New York Chanter of the Anti-Saloon
League, William H. Anderson, telegraphed the potential Secre-
tary, asking for a verification of the rumor that he had been
engaged in the distilling business.20 That criticism was
partially blunted by a public statement from Penrose that_in
all probability, prohibition enforcement would be transferred
to the Justice Department.21 A little locally-inspired pub-
licity helped too, when the Reverend Doctor Daniel L. Marsh
of the Smithfield Street Methodist Episcopal Church in Pitts-
burgh preached from.the pulpit that he had discussed the mat-
ter with.Mellon and was satisfied that he was no longer in
the liquor business. Marsh stated that the Treasury candi-
date had at one time owned an interest in the Overholt Dis-
tillery 00., but that the concern was now in the hands of
trustees to be liquidated.22

The most likely reason for Harding's reluctance in non-
inating Mellon has to do with Herbert Hoover's appointment.
As noted earlier, the President-elect mentioned to Dawes that
resenhnent to Hoover in the Cabinet was growing. Harding's
campaign manager and later Attorney-General, Harry Daugherty,

reported that it was Penrose and.Knox who were adamant against

—

20New York Tbmes, February 11, 1921.
211b1d., February 1n, 1921.
221bid., February 28, 1921.

.4—

    
   
   
  

the inclusion 0"

is a confi
tinsel! as the
guzent that he
Harding, Deughe
suggested Hello
elect as to wha
Treasury, Daugh
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15
the inclusion of Hoover.23
As a confidant of Harding, Daugherty liked to think of

himself as the power behind the throne. To buttress his ar-
gument that he was the man who made and perhaps controlled
Harding, Daugherty contended.that he was the one who first
suggested Mellon. Responding to a query by the President-
elect as to what he thought of Dawes as Secretary of the
Treasury, Daugherty supposedly said: ”The one man in the
United States in my opinion for the position is Andrew W.
Mellon.” As the story goes, the small town editor replied:
I'Mellon . . . Mellon. I don't know him.” Daugherty rambled
on:

Allen who can make the millions this modest look-

ing.man has gathered in is little short of a magi-

cian. If there is one thing that he knows, it's

money. He will make for you the greatest Secretary

of the Treasury since Alexander Hamilton and will

render tag nation an rnmense service if you can
get him.

Whether it was Daugherty, Penrose, or Knox who first
suggested Mellon is a.moot point. The crucial factor is that
they all supported him until Hoover became a stumbling block.
Wishing Hoover to be in the official family, Harding and
Daugherty used Mellon as a bargaining point to win over the
recalcitrant Senators.

Under directions from Harding, Daugherty met with Knox
and Penrose in mid-February to iron out the difficulty. The

 

23Daugherty, Inside Stor , p. 98.

2l’fIbidu p. 7h. That Daugherty would use the Hamilton
comparison makes the quote suspect. The Hamilton comparison
became very popular during the Coolidge years.

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16

Pennsylvania Senators were objecting to Hoover because he
was not a good party man, that he had allowed his name to
be entered in the 1920 Democratic primary in Michigan. The
former Belgian relief director had also alienated these
anti-Treaty Senators by joining the Committee of Thirty One,
a Republican organization which said that a vote for Harding
was a vote for the Treaty of Versailles. According to
Daugherty, "Penrose got my ultimatum--no Hoover, no Mellon.
And rose to heights of profanity I have never heard
equalled.'25 Penrose was also fearful that if Mellon heard
of any hesitancy, he would never take the job. Mellon's
sponsors, however, yielded to Harding's demand for a seat
for Hoover, and the Iowa engineer "was on his way to the
White House."26

It is doubtful that the meeting went off quite that
way.27 As rash as he may have been, Daugherty would hardly

risk the chance of alienating two of the most powerful men

m

251b1d., 98.

26Ibid., 100. Hoover also remembered that his appoint-
ment was held up by Senatorial opposition. Herbert Hoover,
The Memoirs of Herbert Hoover, Vol. 2, The Cabinet and the
EggsidencyfiTNew York: The Macmillan Co., 1952), p. 36.
See also the New York Timeg, January 19, 1921 for a report
that Penrose was objecting to the inclusion of Hoover.

27According to Andrew Sinclair, Daugherty had informed
Harding that the Old Guard was supported by the Progressive
OP Insurgent Senators in their objection to Hoover.
Dangherty had thought it politic not to fight the Senators,
but did as directed in making known Harding's wishes.
Sinclair, Available Man, 18u-85.

 

 

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17
in the Senate by making a grandstand play. Besides, Harding
lessened the blow of appointing Hoover by giving Pennsylvania
a second seat in the Cabinet. James J. (Puddler Jim) Davis,
onetime Pittsburgh ironworker and national president of the
Loyal Order of the Moose was made Secretary of Labor.

In the long run, the Old Guard Senators need not be too
disappointed. With the exception of Charles Evans Hughes and
Hoover, they either dictated or acceded to every choice.
Harding could have a moment of independence if it would keep
him.happy and pliable under other circumstances. It is an
interesting proposition to consider what might have happened
had Penrose and Knox refused to yield. The structure of the
Twenties would have been entirely different without Hoover and
Mellon in Washington.

With the solution of the Hoover-Mellon confrontation,
Harding went ahead and made a formal offer February 2h, 1921.28
Mellon immediately accepted and accelerated the process of
divesting himself of his directorships, something he had begun
a month earlier.29 Why Harding had waited a week before mak-
ing the appointment public and the manner by which he made
it known remains a mystery.

The new Secretary arrived in Washington early Inaugura-

tion Day, accompanied by Senator Knox and a small retinue of

‘

28Mellon, Mellon's Sons, u02.

29gpgg. and New York World, January 13, 1921.

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18

Pittsburghers. After attending the Inaugural festivities,
the group retired to Knox's office while the new President
went to the Senate chamber to present the nominees for his
Cabinet. He was the first President to do so personally
since Thomas Jefferson and was indicative of his close rela-
tionship with his former colleagues. The selections were
hurriedly approved without objection and Chief Justice White
was called over to administer the oath of office to Mellon.
Later in the day it was brought to the Secretary's attention
that the Chief Justice could not preperly administer the oath
because he was not a notary public and Mellon was resworn the
following day by a clerk at the Treasury Department.30

Andrew W. Mellon's appointment was now a fait accompli
before the American public, yet the man on the street still
had no real knowledge as to whom the man was. The other
Secretaries were reasonably well known, with a few like Hoover,
Hughes and Will Hays having something of a national reputa-
tion. Only with Mellon did the public draw a total blank.

Newspaper information on the man who was to hold the
Treasury reins for over a decade was meager. Usually referred
to as a "Pittsburgh banker" or a "Pittsburgh financier," it
was rumored that Mellon was one of the richest men in America.
No one except William Anderson at the Anti-Saloon League did
much digging and.how he obtained his information is not known,

for the usual sources of information were lacking. The

k

30C.S. Hamlin MSS, Index-Digest, Library of Congress,
V01. 6, pe 1’41.

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19
Secretary was not listed in Who's Who in America until the
1918-1919 volume, and the citation was rather cursory. His

name had not appeared in the New Yerk Times Indeg until the

 

Knox-Harding meeting of New Years Eve, 1920. Journalists
could not resort to their financial editors for source mate-
rials because he was not particularly well-known among the
business segment of the population. Two of the more popular
financial writers of the time, B.C. Forbes and John Moody,
did not see fit to include him in their books on significant
businessmen, though Forbes included such notables as August
Heckscher, William T. Gaston, and H.P. Davidson.31 Even in
Republican Party circles, Mellon was an unknown quantity
except among the reigning figures in his home state. The
country had a man thrust upon it who was familiar only to
the men that counted, the powers that be who put him in the
Cabinet.

By the time he had left office in 1932, the public knew
more about Andrew Mellon. As the country became more aware
of his fiscal and monetary policies, his name and reputation
grew. Though he was to become very prominent as a public
figure, the populace was to learn little of his private life.
He had a "fetish" for privacy and did a remarkable job of

maintaining it in spite of the harsh glare of life in the

__

31B.C. Forbes, Men Who Are Making America (New York:
ELC. Forbes Publishing Co., l9l6-l9l7) and Jehn Moody,

$_h9e Masters of Capital (New Haven: Yale University Press,
19).

 

 

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20
nation's capital.

Mellon, as the papers described, was a banker by pro-
fession, the chief executive officer of the Mellon National
Bank and its parent concern, the Union Trust Company. His
chief investments included the Aluminum Company of America,
Gulf Oil Corporation, Koppers Company, and the Carborundum
Company. All were headquartered in Pittsburgh and were ones
in which Mellon was a principle stockholder and director.

The total worth of the man is inestimable because it was not
public information and could vary significantly on how the
stock market went that day. It was traditional Mellon family
policy to live without ostentation and to keep the fortune
invested in lucrative enterprises. Suffice it to say that
when he died in 1937. he left an estate of about $37 million
to the A.W. Mellon Educational and Charitable Fund. This

was after he had divested himself to his son and daughter and
had presented the United States government with its largest
gift from a private donor in the form of the National Gallery
of Art, whose value, including contents, was variously esti-
mated between $50 and $70 million. The rumor that he was one
of the richest men in America was quite true.

How Mellon came to command an industrial and financial
empire of gigantic prOportions is an incredibly simple story.
To begin with, he was no Horatio Alger, but was born to a
wealthy family. His father, Judge Thomas Mellon, former attor-

ney and Judge of the Common Pleas Court, had amassed a small

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21

fortune by prudently investing in commercial real estate and
coal lands. Retiring from.the bench in 1869, he formed the
banking house of T. Mellon and Sons to service the burgeoning
coal and steel industries.32 Andrew was the fourth son of a
family of six sons and four daughters.33 Except for short
periods in private schools or with tutors, the Mellon children
attended the ”Thomas Mellon school of finance," from which
Andrew graduated summa cum laude. Andrew's attendance at
public institutions was limited to just short of four years
at the Western University of Pennsylvania (now the University
of Pittsburgh). Fearful for his son's health, Judge Mellon
had Andrew withdraw from the Class of 1873 before commence-
ment, thus depriving him of a degree until the University of
Pittsburgh granted him an honorary doctorate in 1921.

To fortify his son's health (he had already lost two
boys in childhoon), Judge Mellon helped set up Andrew and his
younger brother Richard in the real estate and lumber business
in Mansfield (now Carnegie), Pa., a suburb of Pittsburgh. It
was the father's belief that working in the out-of—doors would
develop Andrew's constitution before he brought him into the

bank. Also in the Judge's mind was to test the boy's business

32For the growth of Thomas Mellon from farmer to capi-
talist see his autobiography Thomas Mellon and his Times
(n.p., 1885).

33For a complete family tree of the Mellons see William
Murphy, "The Mellon's of Pittsburgh", Fortune, October, 1967,

pp e 123.)... e

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22
acumen. The two older son's had succeeded in the business
world, not it was time to see what the younger ones were
capable of.

.For eighteen months their business flourished, but they
were forced by the Panic of 1873 to cut short the venture.
Selling out with a tidy profit before the panic hit bottom
was described by the Judge as "a masterly stroke of business
policy." Sensing that the depression would be lengthy, the
boys had retired from the field rather than trying to weather
the storm. Escape through liquidation remained a vivid memory
to Andrew when the 1929 crash came.

All of the sons returned to the bank to help stave off
a run, but only Andrew remained when the bank was safe, the
others leaving for various enterprises. Until 1880, when the
Judge decided that he was sufficiently able to take over the
operation, Andrew continued under his father's tutelage. The
Judge gave Andrew power of attorney and retired to write his
autobiography in the hope that it would prove an inspiration
for young boys as Benjamin Franklin's had for him.3u

Thenmmt fortuitous event in Andrew Mellon's life, short
of being born to wealth, came in 1877 when the Judge intro-
duced him to one of their clients, Henry Clay Frick. Frick
had come to the Mellon bank several years earlier to obtain

a loan of $10,000 to start a coke business south of Pittsburgh.

 

3“All of the information as to Mellon's formative years
comes from his father's autobiography.

 

 

 

 

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23
Impressed by Frick, the Judge had stood by him with addi-
tional loans through the depression years. This proved to be
a wise decision in that before the decade had ended, Frick
was a millionaire and was destined to become a partner of
Andrew Carnegie and a moving force in the steel industry for
over forty years.

Having accumulated his first million, Frick decided it
was time for a vacation, perhaps a grand tour of Europe. He
invited the younger Mellon to accompany him and the two bach-
elors triumphantly crisscrossed the Continent, coming to like
it so much that afterwards they returned many times. On that

journey, an intimate, lifelong friendship was formed.35

As Pittsburgh prospered, so did the banking house of
T. Mellon and Sons. When his younger brother Richard returned
to Pittsburgh after a business venture in Bismarch, North
Dakota, Andrew invited him to come into the bank as an equal
partner. No formal papers were drawn to legalize the arrange-
ment until March 1, 1918, when a wartime law required it.
The two could have rested on their laurels and maintained a
steady growth along with the industry of the region, but it
was not in the Mellon tradition to remain contented merely
managing what they had. Moreover, their ever-increasing cap-
ital required new outlets, two of which returned their origi-

nal investment a thousandfold.

 

35George Harvey, Henry_Clay Frickz the Man (New York:
Charles Scribner and Sons,fil928), pp. 71-2.

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2h

Their first major investment came in 1889 when Captain
Alfred E. Hunt and George H. Clapp of the Pittsburgh Reduc-
tion Company came to them in the hOpe that they would take
up a $u000 note that they owed another bank. Following an
extensive investigation, Andrew and Richard (known respec-
tively as A.W. and R.B. to their business partners) accepted
their note 31d offered to provide additional financing for a
share in the company. What had once been a garage-sized fac-
tory on Smallman Street in Pittsburgh blossomed into the
Aluminum Company of America and, in 1925, the Mellon brothers

owned 35,22% of the business.36

A second significant investment appeared in 1901 when
J.M. Guffey approached the Mellons for financial assistance
in developing his holdings in the Spindletop oil field of
east Texas. When Guffey seemed unable to fully capitalize on
the investment, they replaced him with their nephew, William
Larimer Mellon, who had experience in the Pennsylvania oil
business. With $18 million of new capital, W.L. Mellon
launched the Gulf Refining Company whick later merged with the
J.M. Guffey Petroleum Company to form the Gulf Oil Corpora-
tion. In spreading the risk of the investment, the Mellon

brothers invited participation by two men who later proved

 

36Charles C. Carr, élcoa, An American Enterprigg (New
York: Reinhart and Co., Inc., 19317. pp. uo-avand Roy A.
Hunt, The Aluminum Pioneers (Princeton: Princeton University
Press, I951), pp. lu-lS. The latter is a publication of the
Newcomen Society written by the President of Alcoa.

 

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25
valuable partners in the political arena. Judge James H.
Reed, law partner of Philander C. Knox, and William Flinn,
sometime political boss of Pittsburgh with Christopher

Magee.37

Frick, Alcoa, and Gulf Oil were only three of many lu-
crative investments made by T. Mellon and Sons. The Mellons
branched out into railroads, public utilities, coal and other
mining, chemicals, and eventually airlines among others. Each
time an investment was made, it was done in equal amounts for,
the two brothers who shared the risks and profits together.
Until Andrew went to Washington, nothing was done separately
and whenever discussing any matter, either brother would pref-
ace his remarks with "My brother and I . . ."

Though the Mellons financially backed a large number of
concerns, they rarely if ever participated in the active man-
agement. Alcoa was a good example of their methodology,
wherein Andrew and Richard sat on the board of directors, but
Hunt, Clapp, and A.V. Davis directed Operations. Sitting on
the board, they could see that their interests were protected
and could participate in major policy decisions, yet refrain
from management duties. When the Mellons engaged in a busi-
ness, one could be certain that well-trained, reliable under-
lings would be on hand or brought in.

37Sidney Swensrud, Gulf Oil: the First Fift Years
(Princeton: Princeton UniversityLPFEEET—I95IT__p%-_9:TO and
Craig Thomapson, Since Spindletop (n. p., 1951), pp. 9- 2h.

The former is a Newcomen Society pamphlet written by the pres-
ident of the Gulf Oil Corporation.

 

 

26.
The Mellon philos0phy of investment and corporate man-
agement was well expressed by John K. Barnes.

Find a man who can run a business and needs cap-
ital and either start or expand it. Furnish the
capital and take shares in the business, leaving
the other man to run it except when it is in
trouble. When the business has grown sufficiently
to pay back the money, take the money and find
another man running a business and in need of
money, and give it to him, on the same basis.

If the choosing of the men and the enterprises
is wise in a growing community, this rolls up
wealth in a cumulative fashion, but not ill
wealth. The essence of the plan is that it
gives Opportunity to men of special ability in
the community. And they in turn give employment
to great numbers of men. The Mellon fortune has
grown as kind of a revolving fund for the promo-
tiontf enterprises and the employment of work-
ers.

An important corollary was their full investigation of all
potential borrowers and the selection of only the most con-
servative. T. Mellon and Sons was never known for wild-
catting and had a loan policy sufficiently reliable that it
never lacked for ready partners should it see fit to share
the windfall. Frank R. Denton, Vice-Chairman of the Board of
Mellon National Bank in the l9h0's, took a different view,
praising the "Mellon's willingness for risk-taking" and
placed Alcoa, Gulf Oil, and Keppers in that category.39 If
those investments were risks beyond the sense that any in-

vestment is a risk, what did they consider a nice, safe

 

38J0hn K. Barnes, "What Manner of Man is Mellon?,"
WOrlds Work, March, l92h, p. 5M2.

39Frank R. Denton, The Mellons of Pittsburgh (Princeton:
Princeton University Press, 19h8), pp. 16-19.

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27

venture? Because risk was always minimized, there is no
record of a Mellon investment collapsing. If bankers are
supposed to be conservative, the Mellons were reactionary.

Despite their importance in the world of high finance,
the Mellons possessed a penchant for anonymity. With the
exception of the bank and the Mellon-Stuart Company, a con-
struction concern, the family name did not appear on any of
the holdings. Because of that desire to maximize their pri-
vacy, the Mellon name was unfamiliar to the general public
when Andrew was named Secretary of the Treasury. Even in the
Pittsburgh area,where the name was widely known, few people
knew much about the Mellons or their private lives.

One Pittsburgh newsman of the day wrote that the Mellon
name was on "the sacred cow and golden calf list in every

newspaper office in our city. . . ."ho Because every editor

or publisher was either a family friend or a borrower from
one of the Mellon banks, the papers printed no unauthorized
Mellon news.hl This served Andrew Mellon well during his
divorce trial in 1911. Only when word leaked to the Phila-
delphia North American, did the Pittsburgh reading public
discover that Andrew was in the midst of a sordid divorce
case. To prevent any more leaks, Mellon, with the assistance

of Boies Penrose, had the Pennsylvania legislature pass a

hOGeorge Seldes, Tell the Truth and Run (Greenberg Pub-
lishers, 1953). p. 26. *—

leill Irwin, "The American Newspaper," Colliers, July
22, 1911, p. 26

divorce law wh'
hear evidence :
ejury or the .
the divorce de.

Andrew Me.’
circles, but t

served most of

the scenes .

 

28

divorce law which provided for a master, not a judge, to
hear evidence in his chambers, far from.the peering eyes of
a jury or the public. The law was repealed shortly after
the divorce decree was granted.’42

Andrew Mellon was a little better known in business
circles, but the practice of dealing through managers pre-
served most of his privacy while retaining his power behind
the scenes. The managers, men like A.V. Davis at Alcoa and
W.L. Mellon at Gulf Oil, drew the praises of the business
community, but they also received the brunt of any critical
attention. Preferring privacy to glory, Mellon was surely
known in the top echelons of the business world, to men like
J.P. Morgan or George Baker, but it was'ggly to them that he
was familiar. And even where he was known, the extent of
his empire probably was a well kept secret.

What was true of Mellon's familiarity among businessmen
applied also to politicians. Knox and Penrose certainly knew
him.as intimately as one could, but they were almost alone.
In politics, Mellon took a back seat to Frick, who along with
Joseph Grundy, President of the Pennsylvania Manufacturers
Association, visibly dominated Pennsylvania politics by hold-
ing the purse strings. Informed politicians, however, knew

that if they could.have Frick contribute, Mellon would probably

___

haSeldes, Tell the Truth, 6-10 and Harvey O'Connor,

Mellon's Millions the Bio ra h of a Fortune The Life and
Times of Andrew W. Mellon iNew York: Blue Ribbon Books,

Ince, 195;), ppe 113-150

was 919

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29
follow suit.)43 Having trusted Frick's political judgment,
Mellon was placed in an awkward position when the steel
magnate died shortly before the 1920 presidential campaign.

Why did the party regulars, in particular Knox and Pen-
rose, want this man Mellon for the Treasury post? Moreover,
what was it that could persuade Mellon to sacrifice his be-
loved privacy and far flung empire for the political world?

An answer to the first query was that the Old Guard
realized that he would be "safe." Mellon and Frick had con-
sistently adhered to the regular or conservative party line,
as evidenced in their support for Taft in 1912 and their aid
to the Irreconciables in the fight against the League of
Nations. Because of his business involvement, especially in
aluminum, the expectation was that he would be high tariff
and tend to view favorable all issues relative to the world
of finance. Finally, Mellon's experience in banking made
him an ideal candidate for the job, meeting President Hard-
ing's first qualification for a Cabinet seat, fitness for
public service.

A great many men could be considered as ideal as Mellon,
but the Pittsburgh banker had one more asset, personal friend-
ships with Knox and Penrose. He was particularly close to
Knox, who had been Frick's attorney and whose law firm of
Knox and Reed had handled the Mellon account for years. The

junior Senator also served as a director of the Mellon National

w

h3Harvey, Henry Clay Frick, 326.

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30
Bank.

Deciding that Mellon was their candidate, the Senators
still had to persuade him to accept. As is the case with
most men, little prompting was necessary to convert him to
their way of thinking. Instead of being a reluctant candi-
date, Mellon seemed to be amenable to their offer.

The question of why he came to Washington was put to
Mellon on two different occasions. Leaving office in 1932,
the retiring Secretary said that he had viewed the Treasury
job as something that would provide a transition to retire-
ment. He anticipated returning home in 192h to "meddle with
business as I liked without being tied down to it."hu The
second time that he was asked, under oath at his tax evasion
trial in 1935. Mellon was much more reticent to reveal his
motivation, implying perhaps that there was more to his com-
ing to Washington than simply a good citizen who asked to
serve his government in his waning years.h5

Possibly Penrose and Knox did not so much pick Mellon
as support him in his ambition to become Secretary of the
Treasury. W.L. Mellon and Harry Daugherty both testified
that the banker had asked Harding to give the post to some-

one else, but two things seem to indicate differently. The

 

uuNew York Times, February 5, 1932.

u50fficial Rgport of the Proceedings before the U.S.
Board of Tax Appeals# A.W. Mellon vs. Commissioner of Inter-
776

gal Revenue, Docket h99, pp. h6H5-6.

 

     
 
   
  

six week delay
offer of the 'I
that the Presi
Daugherty had
heard of any h
was willing to

six weeks. A

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Times dur ing t

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Hellon had ba:
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c'z’nsideratior

For}, 8this. .

 

31

six week delay between the Mellon-Harding meeting and the
offer of the Treasuryship must have indicated to Mellon
that the President-elect was not firm.in his selection.
Daugherty had said that Penrose feared that if "Uncle Andy"
heard of any hesitation, he would never accept. Yet Mellon
was willing to allow Harding to dangle him.on the line for
six weeks. A second item was a revelation by the New Ybrk
232E! during the waiting period that the Mellon National
Bank had underwritten a part of the Republican campaign debt.
The figure cited was $1.5 million, though it was scaled later
to $150,000.,46 Coupling that with Mellon's personal contri-
bution to the Republican war chest, one wonders what prompted
such generosity.h7 There were reports too that Frick and
Mellon had bankrolled the Irreconcilables a year earlier in
their fight against the Treaty of Versaillesfi8

Another feature of a less tangible nature that deserves
consideration was Mellon's personification of the Protestant
work ethic. Schooled by his father to work hard and succeed,
the banker:might have been looking for new worlds to conquer
by 1920. Having reached the pinnacle in the business world,

government service offered a different challenge. His friend

 

h6New York Times, February 7, 1921.

u7Ibid., February 16, 1921 and Ferdinand Lundberg,
America's Sixty Families (New York:' The Vanguard Press,
71pp0 '6.

hefiarvey, Henr Cla Frick, 32h. Mellon would later
deny that his bEEE underwrote the debt or that his contri-
bution was overly large. flew Yerk Times, March 1h, 1928.

 

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32

Charles Schwab, founder of Bethlehem Steel Corporation,
commented that: "No first rate businessman is ever satisfied
with what he accomplishes. He is always straining for the
unattainable."br9 Mellon was that kind of businessman, one
who was not contented to rest but always sought productive
enterprises.

Frank Kent, political analyst for the Baltimore §229
took a less charitable view of Mellon's motivation, but
the point is similar.

There are men of larger means, who having reached
middle age, having achieved success in finance
or business and there being no further thrill
nor sense in the mere piling up of millions,
develop a yearning for some sort of public honor
and prestige. The organization has the power to
provide the position or at least to open the way
for a chance at what they want. On the other
hand, these capitalists have what the organiza-
tion needs - money to finance the campaign.

Such men are known in political circles as 'fat
cats' and they are as welcome to the organiza-
tion as the flowers in May. . . . The late John
Weeks qualified in this class and if Andrew W.
Mellon is not the finest 'fat cat' they have had
in Pennsylvania since anyone can remember, then
every sign fails. 0

Assuming for a moment that Mellon campaigned for the
job, or at least was not as reluctant about accepting it as

he would have us believe, let us examine how much of a

—_

ugcharles M. Schwab, "What I've Learned About Business,"
fifition's Business, February, 1930, p. 36. For an extended
discussion for this matter of businessmen seeking power, see
James W. Prothro, Dollar Decade, Business Ideas in the 19203
(Batgfi gouge: Louisiana State UniVersity Press, 193ET,
pp. "' 90

50Frank Kent, "Fat Cats and Free Rides," American
Mercury, June, 1928, pp. 130-1.

w.

  
 

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33

sacrifice he made. For most men, assuming a public office
usually means a financial loss, but in Mellon's case, this
was not true. His relationship with his brother Richard
guaranteed that his accounts would be taken care of and it
was to Richard that Andrew divested himself. With his son
Paul coming of age and the Mellon tradition of beginning
their children in business early in life, his immediate heir
could be depended upon for assistance. Also, the 1920's
promised to be a boom period, and with most of his resources
invested in stocks and bonds, they were likely to increase
in value in spite of him. He might have made more by re-
maining in Pittsburgh, but he lost nothing until the crash.

The only real sacrifice was the element of privacy. As
member of the President's official family, Mellon was sure
to be in the public eye. The risk element involved was min-
imal, however, in that businessmen were fast becoming idols
and as Secretary of the Treasury, he would be the nation's
leading financier. With the country Just coming out of a
recession, Mellon had every reason to believe that his reign
would be in the most fortuitous circumstances, particularly
if intended to stay only four years. What publicity there
would be promised to be of a favorable nature.

Nor can one ignore the possibility that Mellon may
have been seeking public adulation at the close of his busi-
ness career. In the twilight of his life, he may have been

after recognition of his accomplishments. Privacy and

’+y are I
52:73- 4

=1 m'ivacy,
505‘ ;“

“t‘on for a

 

 

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Ano.h.

 

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bunt “Ebll
art-.C‘JJCed 7;:
3
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31+

anonymity are not synonymous; one can maintain their per-
sonal privacy, as Mellon did, while achieving public rec-
ognition for a successful career.

Another element in the argument that the potential
prestige outweighed the loss of privacy was the fact that
the Treasuryship promised to be the most significant posi-
tion in the Harding cabinet. With the country desirous of
an isolationist foreign policy, the Republicans had campaigned
on a platform primarily economic in nature. Economy was
promised, taxes were to be reduced, the internal and external
debt questions were to be settled, and a new tariff had to
be written. The Secretary of the Treasury was reSponsible
for chairing the Federal Reserve Board, supervising public
construction, enforcing prohibition and a host of other mis-
cellaneous duties. The job was going to be demanding, but
the prestige element could swing the balance out of the loss
column.

The Senators who proposed Mellon promised to cooperate
in seeing that his administration would be the focal one and
that it travel only on smooth waters. When the matter of
who was going to be Secretary of State, ordinarily the par-
amount Cabinet post, was being discussed, Penrose blithely
announced that it made no difference, for the Senate would

lead the way in international relations.51 When Mellon

E

Slflew York Times, January 3, 1921.

v

Q ‘ ‘ .
""‘f‘fied um:

u...u.v’.

O I .
“'9: women I
been‘ . a

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r '. '“
"1:1,: 3 {I g; .

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an, A

that Mellon d
Purse

 

:
seek the .505:
:37? {ache Off
.219 e.

3‘ :+

a.’ my ls in ‘-

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31-;

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35

mentioned that prohibition enforcement might prove onerous,
they promised him that it would soon be transferred to the
Justice Departments2 It was a classic example of the Mellon
philosophy of minimizing risk before venturing into the
"unknown”.

In this same line, we cannot omit the possibility that
Mellon may have wanted the position to protect his empire.
Access to information and participation in the decision mak-
ing process would enable him to judiciously guard and further
his investments. Evidence to be presented later indicates
that Mellon did not use his position for personal aggrandize-
ment, that he did not use his power to directly benefit his
purse. Nevertheless, the element of protection was there in
that he would not use his post to diminish his empire.

Finally, Mellon may have been partially prompted to
seek the post out of a spirit of nobless oblige. Our destines
have more often than not been guided by politicians who have
the financial wherewithal to take an active interest. This
type of individual surely examines the situation to determine
if it is in his best interest, but it would be naive to think
that was all he considered. As James Prothro said: "The
elite is moved primarily by a desire to advance civilaza-

tion."53 This is particularly true of a man like Mellon who

k

h 52Ibid., February 16, 1921 and Mellon, Mellon's Sons,
12‘130

53Prothro, Dollar Decade, Sh.

subscribed to

Kellen was

r)
m
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father before
:3 do what he
set scoff at f.
29337195 and 0‘

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36
subscribed to the tenets of Social Darwinism. Like Harding,
Mellon was part of an era that defined the best minds accord-
ing to the degree of financial success. If the best minds,
i.e. the rich, would not rule, who would? Therefore, as his
father before him, Mellon stepped into the political arena
to do what he could for the improvement of society. We should
not scoff at this kind of thinking for it was common of busi-
nessmen and others who had grown to maturity in the late
nineteenth century.

For a man who began his governmental career in a rather
inauspicious and somewhat confusing fashion, Mellon left an
indelible imprint on the Twenties. Though said in a derrog-
atory manner, it was not entirely without truth when George
Norris and others commented that Andrew W. Mellon ”was the

only man under whom three Presidents served."

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CHAPTER II
POLICY MAKING

The most important period of any administration is the
first year for that is when policy decisions are made and
precedents established. What a few months earlier had been
vague campaign promises are now transformed into concrete
pr0posals for action and a detailed program must be sent to
Congress. This period is particularly crucial when the in-
coming administration is returning from the political wil-
derness of opposition. Criticism is no longer adequate; it
must be replaced with action. As quickly as the new leaders
implement their prOgram, the electorate begins to evaluate
their choices. In turn, the administration modifies its
program according to the initial response of the public, as
expressed directly or through Congress.

This pattern was especially clear when the Harding
Administration took office in the early spring of 1921.
Having spent eight years as a vocal opposition, the Repub-
licans must now come forth with a viable prOgram. Four
months of campaign promises needed to be redeemed and what-
ever the advocates of League membership might think, to

Harding and most of his party's leaders, the most important

37

 

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38
promises were those to reduce taxes, raise tariffs, and
deflate the budget. To Treasury Secretary Andrew W. Mellon
fell the demanding task of formulating programs to satisfy
those promises.

The situation facing Mellon was difficult at best and
perhaps impossible. Though the war had ended two years
earlier, the Democrats had not adjusted to peacetime circum-
stances, as the Wilson Administration suffered paralysis
along with the President. A caretaker attitude prevailed,
particularly after the Republicans gained control of the
legislative branch in the 1918 election. Congress and the
President neutralized one another by the one's failure to
consider executive plans and by the other's vetoes of Repub-
lican-sponsored measures.

When the deadlock broke in 1920, the people hoped that
the country would begin moving again. In the financial
area, the movement was expected to be backward, a return to
“normalcy." Every segment of the population desired a re-
currence of the pre-war situation when taxes, for example,
were minimal and, in many instances, nonexistant. The Re-
publican campaign was directed to convincing the public that
this return to normalcy was possible, though no specific
pr0posals were ever offered. Suddenly Andrew Mellon was
expected to reproduce a bygone era by means that he must
discover.

The Republican campaign had been aggressive and full

4e
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39

of confidence, but these qualities evaporated during the
interregnum. Harding's procrastination in selecting his
official family was a visible sign that the new administra-
tion was becoming lethargic even before it assumed office.
The expectation that he would choose his Cabinet with haste
so as to begin preparation for the day when they assumed
power was dashed. That Mellon was not given his appointment
until less than a week before the Inauguration precluded any
possibility of drawing a financial program. The President's
limited understanding of fiscal affairs, coupled with his
"belief that the very rich really did have the best minds of
all”, restricted the direction that would be coming from the
White House.1

While the executive branch seemed to be aimlessly
floundering, Congress was making extensive preparations for
the special session. Tax reduction.and tariff revision were
high on their list of priorities. Representative Joseph
Fordney (R-Mich.), Chairman of the powerful House Ways and
leans Committee, was certain of what Congress should do:
repass his Emergency Tariff Bill that Wilson had vetoed in
February. The farm.bloc was demanding assistance, particu-
larly through greater tariff protection to agriculture. Un-
less Harding, Mellon, and the rest of the administration

moved quickly, the likelihood of Congress seizing the initiatime

g

1Andrew Sinclair, The Available Man (New Yerk: The
Macmillan Co., 1965), p. 185-

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was in the offing. Rather than plan their own programs,
they may very well have to respond to those of the legis-
lative establishment.

When Mellon arrived at the Treasury building to meet
his responsibilities, no task force accompanied him; he came
alone. At a meeting with his predecessor, David F. Houston,
he disavowed any knowledge of department matters.2 If
Mellon expected to grasp the initiative from Congress, if
the Treasury Department was indeed to be the "hub of the gov-
ernment immediately after Harding was installed,” it was a
very feeble beginning.3

The traditional method in Mellon's business operations
had been to appoint reliable aides to key administrative
positions while he sat at the head and co-ordinated activ-
ities. It was out of character for him to come to a new
position without a cadre of able personnel about him.
Harding's hesitation in deciding on Mellon had robbed the
Secretary of valuable time necessary for recruiting capable
underlings.

Instead of bringing his own assistants, the Secretary
asked Houston if he would have the existing people remain,
at least temporarily. He was aghast when he discovered that

all of the assistant secretaries held recess appointments

—__

2Charles S. Hamlin MSS, Index Di-est, Manuscript Divi-
sion, Library of Congress, Vol 6, p. .

3quoted in Randolph E. Paul, Taxation in the United
States (Boston: Little, Brown and Co., l9§hy, p. 12h.

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which Congress had refused confirmation. If Houston would

convince them to stay on, Mellon promised that he would have
the President renominate them.Lt A bargain was struck and
tllxree assistants, including Parker Gilbert, were retained.
The New York Times interpreted this move, along with other
Statements by the Secretary, to mean, at least for the time
being, there would be no significant changes in policy.5 As
events materialized, there was more truth in that statement

than the Times realized.

Following his conference with Houston, {ellon was intro-
duced to the Federal Reserve Board, an agency that by virtue
Of his position as Secretary he would be chairman ex-officio.
The members were favorably impressed, especially when he
promised to clear with them all new appointments.6 Since its
inception, the Board had operated in the shadow of the Trea-
SUry Department and he was a Secretary who appeared willing
to. work with it rather than dictating to it, as William G.
MC=Adoo and Carter Glass had done.

Though Mellon retained some of the old officialdom, he
did not hesitate in seeking out new people. J. Frank Drake,

fOrmer assistant to the Secretary's nephew, W.L. Mellon, at

Chalf Oil Corporation, was summoned to Washington to coordinate

‘

LLHamlin MSS, Index Digest, Vol. 6, p. lhl

SNew York Times, March 11, 1921 and April 3, 1921.
6Hamlin MSS, Index Digest, Vol. 6, p. lh2.

 

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a hunt for qualified individuals. He was to work in a
"private and confidential capacity" as the Secretary's per-
sonal assistant and apparently was not on the government
payroll.7

The most important post that Drake must fill was that
of Commissioner of Internal Revenue. This was an excep-
tionally delicate post, for he not only supervised tax col-
lection, but attempted to enforce prohibition. Though per-
sonally not sympathetic to the dry cause, Mellon realized
that if he wished to avoid charges of lacksadaisical en—
forcement, he must find an efficient Commissioner.8 Manned
by a temporary official, the Bureau was in a state of dis-
array.

The newspapers favorite was Representative C. Bascom
Slemp (R-Va.), a man to whom the President owed a debt for
help at the convention, but Mellon confounded observers
by nominating a political unknown, David H. Blair, a Winston-
Salem, North Carolina attorney. Long identified with the
Republican party in his home state, Blair had been a Lowden
supporter at Chicago but had switched to Harding at an ap-
propriate time. Though a Harding creditor, Blair was care-

fully investigated by Drake, who determined that the Dixie

‘_

7W.L. Mellon, Judge Mellon's Sons (n.p., 1948),
pp. All-16 and U.S. Congress, Senate, Hearings Before the
.§elect Committee on the Investigation of the Bureau of
.gpternal Revenue, 68th Congress, 2nd Session, 192h-25,

E3. 37-

8Mellon, Mellon's Sons, hl3.

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Republican was adequately qualified for the post.9

Mellon may have been satisfied that Blair was his man,
but Senator Hiram Johnson (R-Calif.) was unhappy with the
choice and attempted to block confirmation. The California
Progressive had won the North Carolina presidential prefer-
ence primary and was upset with Blair for not having voted
his way at the convention. Furthermore, Johnson argued, the
prospective appointee's father-in-law had a major tax suit
pending, and the choice of Blair might create a conflict of
interest.10

Knowing that his friend wanted Blair, Boies Penrose did
all that he could to see that the new Commissioner was con-
firmed. Johnson was able to stall the nomination once, but
Penrose and his Senate Finance Committee reported favorably
a second time and the Chairman argued the case on the floor
to a successful conclusion.11 Though Mellon.had his way in
his first encounter with Congress, the victory required the
dogged assistance of Penrose, and the fact that a fight en-
sued over the appointment of one of his key assistants did
not bode well for future relations with the legislative
branch.

Other appointments were made with less controversy.

Roy C. Haynes, editor of a small town Ohio newspaper and

‘hg

91bid., u15-17.
10New YOrk Times, May h, 1921.
llIbid., May 18 and 27, 1921.

 

friend of E8:
lit. At the
another Erie:
of the major
Two 0' the a

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$75.10!“. here

ter. noted n:
affiliation
:eople v'r. 1
its germane

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friend of Harding, was selected as Chief of the Prohibition
Unit. At the War Risk Insurance Bureau, Charles R. Forbes,
another friend of the President and later a principal in one
of the major scandals of the Harding era, was made director.
Two of the assistant secretaries from the Houston adminis-
tration were replaced by Eliot Wadsworth and Edward Clifford,
men noted more for their financial acumen than political
affiliation or friendship with the President. Of the key
people who had stayed on temporarily, only Parker Gilbert
was permanently retained, though very few changes were made
in the lower echelons of the department.

Of all the selections that first year, one in particu-
lar stands out. Elmer Dover, former secretary to Mark Hanna
and Republican National Committeeman, was brought in as an
assistant secretary. The New York Times reported that
Mellon had requested Dover, but it soon became apparent that
he was a charter member of the “Ohio Gang."12 In six months
on the Job, Dover devoted most of his time to sacking longtime
Internal Revenue Bureau employees, replacing them with
political appointees.13 Blair had enough problems with his
department without making it a political merry-go-round and

he tried to force Dover out by firing his assistant under

~_.

12Ibid., December 16, 1921. Before the Couzen's Com-

Inittee J. Frank Drake denied having anything to do with
the selection of Dover and implied that the appointment
<3ame from outside the Mellon circle. Investigation of

§ureau of Internal Revenue, LL8.

13Sinc1air, Available Man, 195.

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the guise of reorganization.1u

Congress reacted to support Dover and the concept of
including more Republicans in Treasury offices. Over 150
senators and representatives petitioned Harding to that
effect and a list of Democratic officeholders was circu-
lated on Capitol Hill.15 Parker Gilbert's name was included
in the list of enemy infiltrators. Mellon defended his ad-
ministration, emphasizing that business organization must
prevail over party loyalty. Though many Democrats had been
retained, the legislative wing need not be alarmed for
”the Treasury is in the hands of Republicans and is governed
by Republican policies."16

Forced into an awkward decision, Harding "chose to keep
the best mind of Mellon rather than the spdils system of
Dover."17 Along with Hughes, Hoover, and Wallace, Mellon
has been praised for making appointments on the basis of

merit rather than of political spoils.18 Essentially this

 

1brSee Blair's testimony before the Couzen's Committee
that he fought Dover, making appointment in spite of him.
Investiggtion of Bureau of Internal Revenue, 63-6h.

1SNew York Times, June 28, 1922.

16Washington Post, June 17, 1922 and in later years,
Mellon was to lament the high turnover in personnel cause
by low salaries. He claimed that as soon as a man was
trained, he was pirated by private concerns for use in
their cases against the Treasury Department, especially the
IBureau of Internal Revenue.

 

17Sinclair, Available Man, 195 and Mellon, Mellon's

lasinclair, Available Man, 195.

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was true, but the Secretary was by no means oblivious to
political considerations. One cannot appraise the choice
of Blair, Forbes, Haynes, and Dover, for example, without
examining the political ramifications.19 Harding or the
"Ohio Gang" were having some say in who received positions
at the Treasury. It was only at the assistant secretary
level, Dover the lone exception, that we really see an
omission of political consideration. For his immediate
aides, Mellon demanded talent as the chief requisite.

While Mellon was developing his own organization within
the department, Congress forged ahead and the Secretary was
required to make some important policy judgments. More and
more he came to rely on the advice of Parker Gilbert. The
memoranda from Gilbert to Mellon and the latter's subsequent
actions indicate that Gilbert exerted a tremendous influ-
ence. The Secretary must have been satisfied with Gilbert's
counsel for he persuaded Congress to create the position of
Under-Secretary and nominated Gilbert for it.

Parker Gilbert was an interesting figure and is deserv-
ing of some attention. Brought into the government by
Russell C. Leffingwell, chief assistant to Houston and
later a partner in J.P. Morgan and Company, the Harvard Law

School graduate moved rapidly from a minor post with the

 

19When speaking of a candidate's qualifications,
Parker Gilbert always informed Mellon as to his party
allegiance.

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War Loan Staff to assistant secretary.20 Leffingwell and
Gilbert kept in contact during the Mellon years, with the
former offering advice on a variety of issues. A case in
point was Leffingwell's interest in a constitutional amend-
ment to prohibit tax-exempt securities issued by the states
and their subdivisions. Writing frequently to the Under-
Secretary about it, a channel of influence developed from
Leffingwell to Gilbert to Mellon to Congress.21 Gilbert
also regularly corresponded with a New York banker, Paul
Warburg, and often wrote other members of the banking fra-
ternity concerning government matters. When his career in
government ended later in the decade, he was welcomed into
the Wall Street community, joining Leffingwell at Morgan's.

In establishing policy, the first significant item
that required Mellon's attention was whether the special
Congressional session would first consider taxation or the
tariff. The House, under pressure from Ways and Means
Chairman Joseph Fordney and the farm bloc, seemed to place
a priority on tariff revision. Throughout March, however,
the Congressional leadership vacillated, keeping a wary

eye on the White House for a push in one direction or the

 

20New York Times, June 28, 1921.

21Leffingwell to Gilbert March 5 and 15, 1921;
Gilbert to Leffingwell, May 26, 1921; Gilbert to Mellon,
March 26, 1921; Mellon to Fordney, April 30, 1921. Taxa-
tion of State and Municipal Bonds file, Official Corre-
gpondence of the Secretary of the Treasury, Record Group
56, National Archives, Box 158.

 

5.1

 

one!” yard
but would n:
but his unde
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arguing £01
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h8

other. Harding seemed to be leaning toward the tariff,
but would not commit himself. Mellon kept publicly silent,
but his underlings made it known that the Treasury Depart-
ment wanted tax reduction first. With the economy in the
trough of the cycle, Thomas S. Adams, economics professor
at Yale and Treasury adviser, announced that the tax ques-
tion should proceed the tariff if the administration expec-
ted to stimulate business as quickly as possible. Gilbert
and others echoed similar sentiments.22

Gilbert sent Mellon several strongly worded memoranda
arguing for the tax reduction before tariff revision. ”I
am.convinced that there is ten times more demand for tax
revision from the people generally and especially the busi-
ness interests than there is for tariff revision. The ques-
tion of precedence between tariff revision and tax reduc-
tion is clearly the most important domestic question before
the administration. . . .' Pointing to the promises of the

party platform, Gilbert noted that a case could be made for
postponing tariff considerations until the world economy
had readjusted. The Under-Secretary, recognizing that
Congress was looking to the President for leadership, urged
Mellon to nudge Harding in the right direction and to expect

help from Hoover and Hughes.23

 

22New Ybrk Times, March 12, 1921.

23Gilbert to Mellon, March 15, 1921, Tariff (General
1919-1921 file, Official Correspondence, Box 127. See also
memorandums from Gilbert to Mellon on March 1h, 16, and 31,
1921, Tax (General) January-April, 1921 file, Official

Correspondence, Box 132.

k9

The argument for a priority on taxation was buttressed
by a poll of newspapers which found a majority, regardless
of party, of nearly five to one, in favor of a reversal of
the program, with precedence given to the readjustment of
"our galling tax burden."2h Bringing the poll to Mellon's
attention for use with the President, Gilbert also reminded
the Secretary that a prolonged fight over the tariff could
delay taxation until the regular session and that revenue
considerations dictated first attention for taxes.25

In his opening address to the special session, the
President came out in support of handling the tariff ini-
tially, though "it is of less concern whether internal tax-
ation or tariff revision shall come first than has been
popularly imagined, because we must do both. . . ."26
Mellon salvaged something out of the confrontation, however,
when his ally Senator Penrose decided that the Finance Com-
mittee would conduct hearings on taxation while the Ways
and Means Committee worked on the tariff. Once more,
Penrose was fulfilling his promise to Mellon that he would
help to make his Job easier.

The Treasury Department did all that it could to avoid

 

. 2h”Tax Relief Demanded before Tariff Revision,”
Literary Digest, April 2, 1921, p. 7.

25Gilbert to Mellon, March 31, 1921 and April 5, 1921,
Tax (General) January-April, 1921 file, Official Corro-
gpondence, Box 132. -

26New York Times, April 13, 1921.

 

income t
and to t
tion we:

miztt h

50
entanglement with the tariff bill. ‘With the advent of the
income tax, the tariff lost much of its revenue importance,
and to become involved in an emotional fight over protec-
tion would not benefit the Treasury. What suggestions it
might have could best wait for calmer times.

While the discussion of priorities was going on, the
Treasury was preparing a tax program. In late April, Mellon
took advantage of the Secretary's annual letter to the Ways
and.Means Committee on expected revenue and expenditure to
lay out general guidelines for tax reduction.27 As part of
a five point program, the Secretary recommended repeal of
the wartime excess-profits tax, with the loss in revenue
made up by a.modified corporate profits tax or an addition
to the flat rate corporation tax. The maximum.surtax rate
on personal incomes should be reduced from 67% to ho% for
1921 and to 33% thereafter. A few minor "nuisance” taxes
could be repealed, but the transportation tax should be
retained unless Congress could prescribe an acceptable al-
ternative. Additional revenue might be raised by increas-
ing the price of stamps and instituting an automobile tax.
Finally, Mellon suggested a series of technical amendments
to simplify the administration of tax laws. Included was
a plan to allow the Commissioner of Internal Revenue, with

the approval of the Secretary of the Treasury, to make final

 

27Annual Report of the Secretary of the Treasury,
1921, Pp. 3h9‘550

 

determinati
which would
all tax ret

Rowen
other item:
It this tr
sales tax '
sales tug
umai
3:311? mar
sales tax
533% (3.:
}{6110:} al:
P08315111.

files 3 SO?

51

determination and settlement of tax cases, a provision
which would give a tremendous assist in bringing up to date
all tax returns.

‘Woven in with these five basic provisions were two
other items. "The Treasury is not prepared to recommend
at this tbme a general sales tax, particularly if a general
sales tax were designed to supercede the highly productive
sales taxes now in effect on relatively nonessential
items."28 A large segment of the business community, espe-
cially manufacturers as opposed to retailers, preferred a
sales tax to the excess-profits levy, and Senator Reed
Smoot (R-Utah) was defending their position on Capitol Hill.
Mellon also proposed that Congress give consideration to the
possibility of prohibiting the issuance of tax-exempt secur-
ities, something he argued was providing a haven for high
income peOple who avoided the surtaxes by investing in these

bonds.29

The Secretary's ideas on taxation were not received
well by the press. The New YOrk Times had long championed
the sales tax and was disturbed that he had rejected it.30
Plans for increasing stamp duties and the proposed auto tax

were objected to by the St. Louis Post-Dispatch.31 The

 

28323.. 35h.

292.351.-

30New Yerk Times, May 3, 1921.

3131:. Louis Post-Dispatch, May 3, 1921.

52

organ of the administration, the flashington-Post, noted that
the recommendations ”display a remarkable grasp of the
financial condition of the government and no doubt they will
have the careful consideration . . . to which they were
entitled.” That was the most the £233 thought it could
say.32

Overall public response was something of a letdown.
Most had hoped that Mellon and the Republican administration
would initiate a program that would somehow return taxation
to its pre-war level. Since the fixed cost of government
had increased tremendously during the war and since Congress
gave no indication of an appreciable reduction in apprOpria-
tions, it simply was not feasible to return to such prewar
rates as a 1% corporation tax and a maximum.surtax of 13%
on personal incomes. In trying to establish a plan which
would provide material reductions for all parts of the eco-
nomic community, Mellon pleased no one group.

The most interesting aspect of Mellon's first tax pro-
gram was that it was Democratic or Wilsonian in origin.
Repeal of the excess-profits tax, for example, had been sug-
gested shortly after the war ended, by the then Secretary
of the Treasury, Carter Glass. Wrote Glass:

The Treasury objections to the excess-prefits

tax even as a war expedient (in contradistinc-
tion to a war profits tax) have been repeatedly

32Washington Post, May 3, 1921.

 

voice
Still
the e
coura
on ov
energ
tare:
mono:

Glass 39'
to leave

surtax h

more in
tional I

6

“EX-8mm

53

voiced before the committees of Congress.
Still mere objectionable is the operation of
the excess-profits tax in peacetimes. It en-
courages wasteful expenditures, puts a premium
on overcapitalization and a penalty on brains,
energy and enterprise, discourages new ven-
tures, and confirms old ventures in their
monopolies.33

Glass went on to request an increase in the normal tax, but

to leave the surtax alone for the "upmost brackets of the
surtax have already passed the point of productivity" and
any increase would drive those of great incomes to invest
more in tax-exempt securities. In addition, a constitu-
tional amendment should be passed to prevent issuance of
tax-exempt securities.3h

In the last year of the Wilson administration, David
Houston reiterated most of the Glass arguments. Refining
his predecessor's case by suggesting that the excess-
profits tax be replaced by a flat-rate tax on profits in
excess of distributed earnings, Houston claimed that the
tax had failed because it was based on invested income.3S
Houston also proposed lowering the maximum surtax rate to
about 50%, agreeing with Glass that they could not be col-
lected. ”The simplest remedy for the situation would be a

general reduction of higher surtaxes, accompanied by

 

33Annual Report, 1919, p. 23.
3""Ibid., p. 3h.
351b1d., 1920, p. 39.

Sh

increases in lower surtax rates.'36

Wilson's last Secretary of the Treasury continued his
arguments for lower surtaxes and repeal of the excess-
profits tax after leaving office.37 His chief assistant,
Russell Leffingwell, went even further, suggesting to Gilbert
that normal taxes were too low and that individuals should
pay taxes comparable to corporations, perhaps as much as
12%.38 Perhaps if Cox were elected in 1920, the tax pro-
gram presented to Congress may have been more ”reactionary."

Exposed to these arguments while working in the Wilson
administration, Gilbert sent Mellon a detailed memorandum
on tax revision ten days after the latter took office.39
Gilbert's ideas were a distillation of the Glass-Houston
program, with.the emphasis on repealing the excess-profits
tax and lowering the surtaxes. Mellon's letter to Fordney,
probably drafted by Gilbert, was simply an elaboration of

earlier proposals. Recognizing the Democratic origins of

 

36Ibid., p. 37.

37David F. Houston, Eight Years with'Wilson's Cabinet,
Vol. II (Garden City, New York: Doubleday, Page and Co.,
1921), p. 101 and David F. Houston, "Taxes--Which and Why,"
Werlds work, November, 1921, 103ff. This last source indi-
cated a closeness of viewpoint between Mellon and Houston
sufficient for the editors of werlds'Work to preface the
article by saying that "Mr. Houston's views on taxes have
been adopted by his successor, Mr. Mellon.”

 

38Leffingwell to Parker Gilbert, April 29, 1921, Tax
(General), January-April, 1921 file, Official Correspon-
dence, Box 138.

39Gilbert to Mellon, March 16, 1921, Tax (General),
January-April, 1921 file, Official Correspondence, Box 132.

his program, .
that its me
was annoyed 1
the oppositi-

drafted by ti

 

The Dem
been virtual
counts give
tion been ii".

I
iiffevfintlv" .

oppOSltiOr} 1
his "D Part

“ception o;

aeflbers of .

 

55
his program, the Secretary later defended it on the basis

that its provisions were bi-partisan in nature. Mellon
was annoyed that dissidents in his own party, as well as
the opposition, would object to policies that had been
drafted by the best minds of two administrations.

The Democratic antecedents of Mellon's tax policy have
been virtually ignored by historians. Most secondary ac-
counts give the illusion that had a Democratic administra-
tion been in office, tax revision would have proceeded much
differently. This is doubtful, for the most consistent
opposition to Mellon's ideas on taxation came from within
his own party, the Insurgent or Progressives. With the
exception of a small cadre from.urban areas, most of the
members of the party of Jefferson and Jackson had come by 1926 to
support the Secretary's concepts so much so that Senator
Irving Lenroot (R-Wisc.) accused the opposition of trying
to ”out-Mellon Mellon," and his sentiments were echoed by
more consistent Democrats.ho The only contemporary writers
to grasp the significance of the Democratic background and
the role Gilbert played in transmitting them.were Drew
Pearson and Walter LippmannJ-l1

While Mellon and the Treasury Department were formulating

 

hoDavid Burner, The Politics of Provincialism.(New
York: Alfred A. Knopf, I958), pp. 155-65 and I73.

threw Pearson and Robert S. Allen, Washin ton Merr -
Go-Round (New Ybrk: Horace Liveright Inc., 193%), p. I75
and Walter Lippmann, Men of Destigy (New York: The Macmillan
Co., 1927), p. 188. Though this writer takes issue with
historians on this point, most economists have recognized
the parallel.

a tax progra
tee were re."
ation: coma]
Bill. The 3
Good 3111 pr-
vetoed it oxj
Wilson's deg
it.

The Bu:
isfactory t:
M the Budg.
Eon“ Versi:
the DiPectoy
PM 3111 ‘4
that '1‘; is
chi” in thj

urinal repo‘

+
“he prepare

 

 

56
a.tax program, and Fordney and the Ways and.Means Commit-
tee were rewriting the Underwood Tariff, the two appropri-
ations committees were acting favorably on the Budget
Bill. The Sixty-sixth Congress had passed the McCormick-
Good Bill providing for a Budget Bureau, but Wilson had
vetoed it over a technicality. Altering it to suit

Wilson's desires, Congress lacked sufficient time to repass

it.
The Budget Bill vetoed by Wilson had been highly sat-

isfactory to the Treasury Department for it placed the Director

of the Budget Bureau under control of the Secretary. The

House version of the bill, the Good Bill, had proposed that

the Director be responsible to the President. When the

Good Bill was being considered, Leffingwell wrote Glass

that ”it is grotesque to turn the thing over to a bureau

c>hief in the office of the President. . . 3:142 In his

‘I-Imual report, Glass emphasized that the "supervision of
the preparation of the Budget should be vested in the

Secretary of the Treasury."h3
When questioned by Senator Medell McCormick (R-Ill.)

albout his version (Director reSponsible to the Secretary

Of the Treasury), Mellon replied that the bill has ”my

hearty approval.” He went on to add that he hoped it would

\

:1 haLeffin 911 to Glass, May 26. 1919 Budget. 1919-
921 file, Of icial Correspondence, Boxl .

h3gnnua1 Report, 1919, 116ff.

be the first

m

extort was

of the Good

 

Echoing
Hilson admit
Budget Buree
transform t3-
cmEed mere
‘iit‘n so muck

could never

 

The Under-5.

 

57
be the first item passed by Congress.“ In the meantime,
Gilbert was warning the Secretary about the inadequacies
of the Good Bill.

Echoing sentiments expressed by his colleagues in the
Wilson administration, Gilbert argued that putting the
Budget Bureau in the President's office (Good Bill) would
transform the Treasury into "a minor executive department
charged merely with matters of administration. . . ."

With so much power in the hands of the Budget Director you
could never recruit a strong and capable man for Secretary.
The Under-Secretary also mentioned that the Good version
was a violation of the Hamiltonian law that the Secretary
should suggest means of raising revenue. In the process
or decentralization, they had lost control of expenditures;
Econ they would have no controlJ-l5

In late April, Mellon informed Gilbert that a White
H<Ibuse conference had resolved the matter in the direction
01‘ the McCormick version.“6 The Budget Director was to be
under the Secretary in a fashion similar to the Commissioner
or Internal Revenue. Something went awry after the con-
1‘erence, for Congress began moving in the direction of the

GOod version and the White House remained silent. McCormick
\

MNew York Times, April 9, 1921.

h5Gilbert to Mellon, May 8 and 28, 1921, Budget,
January-June, 1921 file, Off cial Correspondence, Box 17.

héGilbert to Mellon, April 27, 1921, Ibid.

sent a plea

 

bill and Hall
for assists:
as Congress
the Budget E
rites. Sim;
Coulee Sate
BaM‘s stat
fore the by
Reading wou
tor and the
For th»
rate with

late lastin;

the PPESlde

 

58

sent a plea to the President to intervene on behalf of his
bill and Mellon wrote Senator William.King (D-Utah) asking
for assistance.”7 The letters were to no avail, however,
as Congress passed the Good version and the Director of
the Budget Bureau was incorporated into the executive of-
fices. Simultaneous with the signing, Harding appointed
Charles Gates Dawes as Director. If we are to believe
Dawes's statement that he promised to serve six months be-
fore the bill was passed, it is only logical to assume that
Harding'would‘championlhis preferences for a strong direc-
tor and that Mellon had been misled.“-8

For the second time, the President had failed to coop-
erate with his secretary in the latter's attempt to formu-
late lasting policy decisions. To assuage his feelings,
the President asked Mellon to draw up the rules and regu-
lations for operations of the Bureau. Congress also threw
a sop to Mellon by placing the Bureau within the Treasury,
though under the direction of the President. In the en-
suing years, there was more than one clash between Mellon,
Dawes, and his successor, Brigadier General H.M. Lord, as

to who was running the financial affairs of the

__.

h7Mellon to Senator William.King, May 20, 1921, Ibid.,
land New York Times, May 11, 1921.

“BCharles G. Dawes, The First Year of the Budget of
‘the United States (New York: Harper and Brothers, I923),
PP. 1-5 and 33 and Bascom M. Timmons, Portrait of an Amer-

ricer Charles G. Dawes (New York: Henry Holt and Co.,
I 933’ 9 P0 fiGI'

gmrmaest.Lt
By latep
its work on
tax problem.
loser taxes,
for the one

date. The n

breed that

””Sress a,
‘ er) lle p
Offered rev

COrH
301‘ t

91

 

59
government.“9

By late July, the Ways and Means Committee had finished
its work on the tariff and was turning its attention to the
tax problem. Though definite that the Committee would
lower taxes, how they would do it was uncertain. Except
for the excess-profits tax repeal, Congress had no man-
date. The most likely thing was that the Fordney Commit-
tee would quickly approve the Treasury recommendations, al-
lowing the Senate Finance Committee to write the details.
With Penrose as Chairman, it appeared that Mellon would
have a free hand to dictate terms.

Appearing before the House committee to express his
views on taxation, Mellon, much to the surprise of everyone,
warned that taxes might not be significantly reduced until
Congress and the new Budget Bureau reduced expenditures be-
low the current level.50 At a second appearance two weeks
later, he presented a budget estimate of $h.6 billion and
offered revisions of his April proposal for lower taxes.
Abolishing the excess-profits tax would necessitate a 15%
corporate income tax, and increase fromth%. If surtaxes
were to be lowered, he recommended a $10 tax on all auto-

;mobiles, a one-cent increase in first class postage, and

—__

u9For a detailed discussion of the formation of the
gadget Bureau and the first years of its operation, see
.Fh Willoughby, The National Budget System.(Baltimore:
Jehns Hopkins Press, 1928).

50New York Times, July 23, 1921.

 

atwo-cent
iellor was e
Isignifica.
about to ace
more than ti
The rel
poser polit“
taxes, but 3
was. Eeit'
months, nor
were Eoing
lent, H9110
°lpenditure
he would do
do "hat “as
”may” anrl
aumtitl of
F0? t}
tivity. F:
(R-Ill.) He.
Kellen. SI

 

‘ i
'easible
: r.

to‘ I
M the Se

 

60
a two-cent tax on all bank checks.51 Fordney declared that

Mellon was exaggerating and that his committee would report

a significantly lower tax package.52 The Congress was not
about to accept a program that would require $260 million

more than the Revenue Act of 1918 could provide.
The reason for such a drastic program seems to be

power politics. Mellon wanted as much as anyone to lower

taxes, but he knew they could not be unless expenditures

were. Neither Dawes, who had been on the job almost two

months, nor Congress gave any assurance that expenditures
were going to be reduced. To produce economy in govern-

ment, Mellon used scare tactics. If he could not reduce

axPemditures by direct control of the Budget Bureau, then

he would do so indirectly. The Secretary was willing to

do what was necessary to redeem the campaign promises of
economy and reduction while at the same time preserve the
sanctity of the balanced budget.

Fear the next ten days, Washington was a flurry of ac-
tiV-tty- Fordney and House Floor Leader Martin Madden
(3411-) went to the President to ask him to talk sense to
M61101). Summoning Mellon and Dawes to a conference, Harding
directed them to prepare a more realistic, i.e., politically
feasible, program. With an assist from the Budget Direc-

tor, the Secretary proposed a third estimate, reducing
\
51Annual Report, 1921, pp. 362-69.

52New York Times, August 2, 1921.

    
 
   
 

expenditures
military ap;
spent for d:
the Treasur;
only be inc:
maximum 0
“d 3332. res;
transportat

and discont

 

 

61

expenditures in the executive departments, particularly
military appropriations, and lowering the amount to be
spent for debt retirement.53 In view of these economics,
the Treasury believed that the corporate income tax need
only be increased to l2%%, that surtaxes could be cut to
a maximum.of 32% for 1921 and 25% for 1922 instead of h0%
and 33% respectively as originally suggested, and that the
transportation tax could be halved as of January 1, 1922
and discontinued the following year. The Secretary also
requested authorization to issue additional Treasury cer-
tificates in the event of a budget imbalance. I'In other
words, the Administration was willing to borrow if neces-
sary, but tax rates had to be lowered."5’4 That Mellon was
willing to resort to deficit spending in order to lower
taxes is hard to imagine in view of his reluctance a decade
later to unbalance the budget in the face of economic dis-
aster. Instead, it appeared to be a hedge in the event of
a deficit caused by bill written to suit Fordney, not
Mellon.

Fordney and his chief associate, Representative William
Green (R-Iowa), were much more amenable to the revised pro-
gram. Reverting to the pro-war practice of excluding the

opposition from the formative committee stage, the Ways and

 

6 53Dawes, First Year,83-86 and Annual Report, 1921,
3 9-71 o

5hR.G. and G.C. Blakey, The Federal Income Tax (New
York: Longmans, Green, and o., , p. .

h

'&
Means .0 n1

 

 
 
 

prooosals f:
the farm blf
abargain u:
creased no?
for single 1'
I

was retaine
bill on thel
u“ °Pposit|
The Revenael
Straight pal
i

The Se
830:7. In I
Eflized anil
i‘ied With J
Wict‘sltural
i'lth the Del
l8 written
Penro$8 to
True 1
for Keller I
‘1

Yr

 

62
Means Committee Republicans wrote a bill accepting Mellon's
preposals for the corporation tax and the surtaxes. When
the farm bloc objected to repeal of the excess-profits tax,
a bargain was struck wherein personal exemptions were in-
creased from $1000 and $2000 to $1500 and $2500 respectively
for single and married men. In return, the excess-profits tax
was retained until January 1, 1922. Green shepherded the
bill on the floor and, after four days of vocalizing by
the opposition, it passed as it had come from committee.
The Revenue Act of 1921 passed the House by an almost
straight party vote, 27h-125.

The Senate, however, would prove to be a different
story. In the upper house, the farm.bloc was better or-
ganized and held the balance of power as well. Dissatis-
.fied.with the Harding administration's handling of the
agricultural depression, they often retaliated by voting
with the Democrats. If Mellon was to see the bill emerge
as written by the House, he would have to depend upon
Penrose to push it through.

True to his earlier promises about smoothing the way
for Mellon, Penrose decided that during the fall recess,
the Finance Committee would drop consideration of the
.Permanent tariff and take up tax reduction so that it could
:report to the Senate as soon as it reconvened. Having re-
ceived most of what he wanted from the House and with
Penrose supporting him, the Secretary grew more daring in

Iris recommendations to the upper chamber. Asking for repeal

 

of the me:
stead of the
that it was
could take

also revert
tax be 153.; I‘
then out to
to set the

personal ex
kept. Apps

lounges 9r

 

 

63
of the excess-profits tax effective January 1, 1921, in-
stead of the following year as voted by the House, he argued
that it was the most important step that the government
could take to revive business. Strangely, however, Mellon
also reverted to his earlier suggestion that the corporate
tax be 15% and that high surtaxes be retained for 1921 and
then out to 25% for 1922, thus omitting the House decision
to set the maximum surtax rate for 1921 at 32%. The increased
personal exemptions authorized by the House should also be
kept. Apparently, business we to pay for the increased al-
lowances on personal incomes and the upper brackets were to
wait a year for relief.

The program as a whole resembled the suggestion of
April, indicating that the August alterations for the House
were not taken seriously by the Secretary, but rather were
a product of the President's wishes after consulting with
Fordney and Madden. With a responsibility to pay the gov-
ernments bills, Mellon wanted.the higher rates as suggested
to the Senate. He had recommended the lower ones only out
of necessity, to mollify Fordney, and had no intention of
deficit spending. The tactic was to accept what he had to
from the House and make up the difference in the Senate O
where Penrose would help. The Secretary's feeling seemed
to be that taxes should be lowered, but only as far as a
balanced budget would permit. He was still following the
tactics he had employed in driving down government expendi-

tures.

61+

Penrose, fought every step of the way in committee by
Robert La Follette (R-Wisc.) and former chairman Furnifold
Simmons (D-N.C.), pressed for Mellon's recommendations,
but was only able to obtain an increase in the corporation
tax and repeal of the excess-profits tax. As passed by the
Finance Committee, the bill was substantially the same as
the House version. When it came to the floor, Penrose,
realizing that the Farm Bloc-Democratic coalition intended
to significantly amend the bill, declined to give the cus-
tomary speech of explanation. He was political enough to
know that if he could not win in his own committee, a floor
fight could only bring disastrous results.

Seeing the lOgic of Penrose's position, the Republican
leadership met with the President and agreed to let the co-
alition alter the bill without a floor fight. An amendment
for a maximum surtax rate of 50% on incomes in excess of
$200,000 was substituted for 32% rate on those over $66,000.
As Mellon requested, the reduction would not go into effect
until 1922. A tax on gifts designed to halt income and in-
heritance tax evasion was also included in the bill. Con-
sidering the power the coalition had, the bill as passed
by the Senate reasonably resembled what had come from the
committee.

A compromise solution was worked out in the Conference
Committee. When the House accepted the surtax rates imposed
by the upper chamber, the Senators agreed to their colleagues
wishes on the corporation tax (12%%) and LaFollette's

gift tax we
riding for
$535 millio
.'
itseksgivir.
Ho one
was nobody‘
his disfanr:
Week after
li’llt‘lonal

ceived most

 

would Soon
| 'transit

the tax 33$

Kev YOPk ms

\
a” “lake sh:

 

65
gift tax was mutually rejected. The final version, pro-
viding for tax reductions of $70 million for 1921 and
$835 million for 1922, was signed into law shortly before
Thanksgiving.

No one was particularly satisfied with the bill; it
was nobody's child and everybody's stepchild. Expressing
his disfavor in his first annual report which appeared a
week after the law went into effect, Mellon called for
additional lowering of the surtaxes.5S Though he had re-
oeived.most of what he wanted, it was certain that he
would soon be back. Ill and irritable, Penrose called it
a ”transitional or temporary measure. It does not place
the tax system on a stable or scientific basis."56 The
New Yerk Times agreed with Penrose that it was a “tempor-
ary makeshift” and the St. Louis Post-Dispatch said that
”we need go not further than Congress itself to be informed
that the work was poorly done."57 On the other hand, ac-
cepting the maxim.that a good compromise is one that sat-
isfied no one, we might describe the Revenue Act of 1921 as
the perfect compromise.

Who benefitted by the tax program? Obviously the
business interests and the very wealthy gained most. Because

of the increase in exemption rates, the little man fared

 

5SAnnual Rpport, 1921, lh-lS.
56New York Times, November 23, 1921.
SZSt. Louis Post-Dispatch, November 26, 1921.

well. It we

   
  
  
 

minor revia‘
Ermin-
that busine.

ated as h1g1;

than $130 ,0
not 155.1,. Al
can tantic
that bore 1

are,
”“30: ben‘

tic!) alley;

 

66

well. It was the middle income group that received only
minor revisions on its surtaxes that received the least.

Examining the act in a more detailed fashion, we find
that business had a very heavy excess-profits tax, gradu-
ated as high as 65%, replaced by a modest increase in the
corporate tax from.10% to 12%%. The very wealthy had
their surtaxes reduced from 65% on incomes over $1 million
to 50% on those in excess of $200,000. On incomes of less
than $100,000, however, the reduction averaged about 1%,
not 15%. As had been traditional in the history of Ameri-
can taxation, it was the man in the middle income bracket
that bore the brunt on the income tax. The citizenscnzthe
lower end of the economic scale, those who earned under
$5000, benefitted handsomely by the increase in the exemp-
tion allowance. On incomes of $h000 and less, the average
family of four paid a maximum.tax of $12 and $80 per
thousand above that. What appears to have happened was
that the government lowered its costs somewhat and that
reduction was passed on to those at the extreme ends of
the taxable population, those under $5000 and over $100,000.
There is no evidence to warrant the traditional charges that
Mellon was trying to shift the burden of taxation or that

his program.was designed simply to lower taxes on the rich.58

58This writer has relied.heavily on Blakey, Income Tax,
139-222, for details concerning the passage of the‘Revenue
Act of 1921 through Congress. For an adequate, though not
as detailed, discussion of the bill, see Sidney Ratner,

Taxation and Democracy in America (New Ybrk: John Wiley

 

6?

Simultaneous with the battle over taxes, Mellon waged
another fight with Congress of a more personal nature. In
late June, he informed the President that just over $10
billion was outstanding in loans to foreign governments and
he requested full authority to collect it, including de-
cision as to the form and terms of settlement. The differ-
ing situation of the various debtor nations required ex-
tended negotiations and particular concern for each indi-
vidual country. Harding agreed and forwarded the Secre-
tary's request to Congress, suggesting ”the grant of broad
powers to the Secretary of the Treasury to handle the
problem. . . ."59 Introducing a bill tailored to Mellon's
request, Penrose opened hearings in early July.

Initial reaction in the Senate was highly negative.
Senators McKellar (D-Tenn.) and LaFollette believed that he
sought this power in order to cancel the debts.60 Echoing
populist sentiments, LaFollette envisioned a conspiracy of
international bankers, Mellon included, to have the public
debt cancelled so that the private debt, estimated around
$h billion, might become collectable. Articles in banking

 

58(cont.2 and Sons, l9h2 and 1967 , pp. uOO-h21 and
R.G. Blakey, The Revenue Act of 1921, American Economic
Review, XII (March, 1922), pp. 75-108.

59Annua1 Report, 1921, uo-uz.
6ONew Ybrk Times, June 2M, 1921 and Belle Case

LaFollette and Fola LaFollette, Robert M. LeFollette, Vol.
II (New York: The Macmillan Co., I§§3§, p. IO§I-3§.

68

journals such as "Cancellation of the Allied Debt Would be
the Greatest Possible Panacea" seemed to confirm.their
fear.61

There were other criticisms too. McKellar suspected
that Mellon might exchange worthless German reparations
bonds for the notes of the Allies, leaving the United States
with nothing. The Allied governments were having little
success seeking buyers for these bonds, and the New YOrk
Times editorialized that giving such sweeping powers to
the Secretary of the Treasury was ”contrary to the public

interest and insulting to the dignity of Congress."62

Mellon did all that he could to rebutt the criticisms.
Appearing before the Finance Committee, he denied outright
any intention of cancelling the loans.63 The Adminstration
had been on record as early as April to that effect.6u
Reading into the Congressional Record the exchange of
letters between Wilson, Houston, and Lloyd-George denying
the British request for cancellation, Senator Henry Cabot
Lodge (R-Mass.) implied that the Republican administration
would continue the precedent as it had in so many other

matters.65

 

61Banker's Magazine, June, 1921, pp. 997-1001.
62New York Times, June 25, 1921.

631313., July 15-16, 1921.

6km” April 2, 1921.

6SU.S., Con ressional Record, 67th Congress, 1st
Session, 19217_I§IT—PEFE_IT—EpT—39SO-51.

 

legislative

 

familiar wi
or Versailll
Finance Corr
of action.
When 1
of the reg
Kellen by

the Power

69

At a second meeting with the Senate, Mellon pleaded
that he not be hindered by Congressional guidelines which
might embarrass the country or delay settlement. Ultimate
legislative approval or review might also discourage debtors
familiar with the Senate's reluctance to ratify the Treaty
of Versailles.66 Apparently convinced by his arguments, the
Finance Committee voted to grant his request for freedom
of action.

When the Ways and Means Committee took up consideration
of the request in the fall, Chairman Fordney surprised
Mellon by declaring that the Committee would recommend that
the power of settlement be given to a commission of which
the Secretary would be chairman. Harking to McKellar's
fears, the House group also provided that the bonds of one
debtor could not be substituted for those of another. In
addition, a minimum interest rate of 5% and a maximum.matu-
rity date of twenty-five years for all bonds was established.
Two days later, the White House announced acceptance of the

House plan.67 The President had paid lip service to the

Secretary's request, but as happened on several other is-
sues, as soon as Congress indicated disagreement, he re-
treated, leaving Mellon to fend for himself.

Senator Penrose was visibly disturbed by the House

changes and proceeded to hang the bill up in committee.

 

66New YOrk Times, July 19, 1921.
67Ibid., October 15, 1921.

Heating Hit
invited the

Finance Cor.

  
 
    
 
  

man suspenc'
devote ful
Heater? (.3
and the my
the Presid
fiVe year I

0n t‘r.
as to DTOh
“‘9? 00:5

1:: annual

the uPper

RCCepted
f
'epest ar-

but t0 ac

70

Meeting with Mellon in early December tO'plan strategy, he
invited the Secretary to restate his case before the
Finance Committee.68 Following that appearance, the Chair-
man suspended the hearings so that his colleagues could
devote full time to the seating of Senator-elect Truman
Newberry (R-Mich.). Penrose died suddenly New Year's Eve
and the new chairman, Reed Smmot, after conferring with
the President, agreed to the commission plan, the twenty-
five year maturity date, but an interest minimum.of h%%.

0n the floor of the Senate, the bill was amended so
as to prohibit completion of the debt settlements until
after Congress had given its assent. The Senators also
provided a three year life for the committee and demanded
an annual report to Congress. As amended, the bill passed
the upper chamber 39-26 and was returned to the House which
accepted the Senate version after Mellon agreed to the in-
terest and maturity provisions. There was little choice
but to accept the provisions if he expected to play any
role whatsoever in debt funding, for his eligibility to
sit on the commission had been challenged in the Senate,
and.if’the bill was not passed soon, he may have been

omitted entirely.69

Another area to be considered in examing Mellon's

 

68Ibid., December 13, 1921.

69U.S., Con ressional Record, 67th Congress, 2nd
Session, 1922, {£11, Part )4, pp. 3510-11.

policy form

Reserve Boa,
at their fi
when he rec
Comptroller
Board, with
long friend
extremely 1
Secretary ‘
Secretary :
Md them

their Plan
busing“.

thought i t
matter to
cloded thz

71
policy formulations was his role vis a vis the Federal
Reserve Board. The favorable impression he gave the Board
at their first encounter evaporated in less than.a week
when he recommended Donarl R. Crissinger for the post of
Comptroller of the Currency, an ex-officio member of the
Board, without clearing the appointment with them. A life-
long friend of the President whose banking experience was
extremely limited, Crissinger embarrassed.Mellon, but the

Secretary was forced to abide by Harding's wishes.70 The
Secretary further alienated himself from.the Board when he

told them.that he would check with the President concerning
their plan to send David Houston abroad on Federal Reserve
business. Adolph Miller, the only economist in the group,
thought it scandalous for the Secretary to refer a Board
matter to the President, and his colleague C.S. Hamlin con-
cluded that the Treasury Department would be run from.the
'White House with Mellon as a figurehead, though Mellon
could have stopped the Crissinger appointment with a threat
of resignation.71

In his first few months with the Federal Reserve Board,
Mellon helped form a majority group which instituted what
was to be a decade-long program of low discount rates.
Governor W.P.G. Harding argued against the reduction policy,

enufliasizing a fear of stock market speculation because of

 

70Hamlin MSS, Index Digest, Vol. 6, 1&2.
711b1d.

 

cheap none;

    
  
  
  
  
  
  
  
  
  

little SPGL
three nont‘:
One can on
Hmding pr
the first
lowering 0
"while
tive branc
Joint Con:

Bovds hi5

 

72
cheapmoney, but Mellon and his group believed that a
little speculative activity would not be harmful.72 Within
three months the record high rate of 7% was reduced to 5%.
One can only imagine the ire of the Board when President
Harding proclaimed that one of the major accomplishments of
the first four months of his administration had been the
lowering of the discount rate.

While struggling for its independence from the execu-
tive branch, the Board came under fire from Congress. The
Joint Commission on Agricultural Inquiring examined the
Boards high rate policy of 1919-1920. Many people in the
farm.areas blamed the agricultural depression on that policy,
focusing criticism on Governor Harding for instituting it.

Throughout the investigation, Mellon remained silent.
Having his hands full with the farm bloc on other matters,
he was not going to open a new front. Defense of the Board
fell to Governor Harding and Benjamin Strong of the New
'YOrk Federal Reserve Bank as Mellon abdicated his leadership
‘role. That the Board was severely sanctioned for the high
:rate policy for stemming post-war inflation made an in-
delible mark which was to haunt the country a decade later.
JHad.Mellon stood by his Board and their policies, perhaps
they would have taken a stronger position in 1928 and 1929.

But with the fear of a Congressional inquiry and a weak

72Ibid., lh3-hh and Lester V. Chandler, Ben amin

Stron Central Banker (Washington, D.C.: The Broo ngs
Institution. I933). pp. 1711-75.

  

leader, th-
wket app:

Asan

 

(ll-Iowa) all
On the poir
clusion of
existing 0
Federal. Re
Clitoral ~j
manners a
different
of the cc

73

leader, they were hesitant to raise rates when the stock
market appeared out of control.

As a result of the inquiry, Senator William.Kenyon
(R-Iowa) suggested that a farm member be added to the Board.
On the point, Mellon took a position, objecting to the in-
clusion of a sixth appointive member. "I feel that the
existing organization of the Federal Reserve Board and
Federal Reserve Banks assure adequate representation to agri-
cultural interests. . . ." The President appoints five
members and the law directs him to have due regard to the
different commercial, industrial, and geographical regions
of the country.73 Congress was not swayed and a farm.mem-
ber was added to the Board.

Another duty of the Secretary that required a leader-
ship role in policy formation was the enforcement of prohi-
bition. Anticipating that it would be transferred to the
Justice Department, Mellon was slow in developing a policy.
But when Penrose suggested a transfer, the Anti-Saloon
League and other dry groups reacted negatively.7’4 With no

support from the White House forthcoming and with more

 

73Mellon to Senator J.S. Frelinghuysen, July 15, 1921,
Federal Reserve Board--Farm Member on Board, 1921-1923
:file, Official Correspondence, Box 59.

7“In his Prohibition the Era of Excess (Boston:
ILittJe, Brown and Co., I962), p. 191, Andrew Sinclair argued
that Wayne Wheeler and the Anti-Saloon League wanted to keep
enforcement in the Treasury which was too busy to adequately
cope with the problem and therefore gave them a better

chance to influence appointments.

pressing ma
vania Sena
Faced

his progra:

    
   
 

Blair and ,
were insti
organizati

lished l. p

7h
pressing matters demanding attention, the junior Pennsyl-
vania Senator abandoned the plan.

Faced with the problem of enforcement, Mellon limited
his program to appointing two capable men to key positions,
Blair and Haynes. No new ideas on improving enforcement
were instituted and the first year was spent developing an
organization. Lacking serious intent, the Secretary estab-
lished a precedent that in many respects justifies critics
claims that prohibition never had a chance for it was not
vigorously enforced.75

The last area for policy formulation dealt with the
dmmestic debt. The banker in Mellon viewed the domestic
debt, and the foreign debt for that matter, as a solemn ob-
ligation that must be paid. The Wilson administration had had
limited success in refunding and.the short-dated debt stood
at $7i‘billion when Mellon assumed office and a total debt
of over $23 billion. The constant maturation of short-
date notes was draining the Treasury, and Mellon with the
assistance of Parker Gilbert, instituted a program of ex-
‘bending maturity dates to more manageable periods. This
extension was combined with a progressive diminution of the
interest rate, areflection of the confidence in Mellon

possessed by the investing public as well as a savings to

 

75In his Annual Report for 1921, Mellon's discussion

on prohibition e orcemen was limited to two vague para-
graphs on the difficulties of the job.

  
 

in his fir:
most of th
new people
Mellon inci
tions. In
hands and

his timed:
ideas. T3
the ideas
the Budge
We See a

fruStpate
Federal R
hams lea
the sine

Pate. A:

thrWEh 1

than for:

75

the government.76

In sum, what were the policies established by Mellon
in his first year? In terms of staff, Mellon retained
most of the old personnel while gradually incorporating
new people. Never an advocate of the spoils system,
Mellon included political considerations in filling posi-
tions. In the realm of taxation, Mellon relied on old
hands and old ideas. He was more openly pro-business than
his immediate predecessors, but hardly inventive in his
ideas. The most that can be said is that Mellon modified
the ideas of Gilbert, Houston, and Glass. In the area of
the Budget Bureau and the payment of international debts
we see a strong personality grasping for power and being
frustrated. Someone else would make policy. At the
Federal Reserve Board there was an abdication of the chair-
:man's leadership and to a certain degree a prostitution of
the system by campaigning for a lowering of the discount
rate. As for prohibition enforcement, Mellon simply went
through the motions; no policy was established. Rather
than.formulating methods of operation, Mellon tried to avoid
Ibis responsibility by passing it on to the Justice Depart-
ment. It was only in funding the domestic debt that Mellon
totally succeeded in creating the policy he wanted. The

investing public cooperated as the Congress had not.

 

76For a description of the funding of the short-dated
debt, see Annual Report, 1921, 3-6.

  
    

that was de,
could not
irg. Hell
and the di
opposed th

a willing:

 

 

76

In a larger sense, probably the most important thing
that was determined in Mellon's first year was that he
could not rely on the President to support his policy mak-
ing. Mellon's policy decisions were always controversial
and the dissident Farm.Bloc-Democratic coalition usually
opposed them. As soon as Congress or anyone else exhibited
a willingness to fight, Harding withdrew his support and
let Mellon fend for himself. Only Boies Penrose, the man
who had picked him.for the job, came to his aid, but
Penrose was not enough to assure success. ‘With the death
of Penrose and Philander Knox, Mellon was stranded politi-
cally. The remainder of his tenure looked to be difficult.
Throughout 1921 there had been rumors of his resignation
everytime one of his policy ideas ran afoul. Without
Penrose to salvage something for him, the likelihood of

one of those rumors coming true was good.

Andra
the Trees-,1
ines in {l
and a Vac‘l
“-8 whirl

SUppopt oj

 

Petal? Va

tlal Peri

 

CHAPTER III

PROTECTING THE TREASURY AND
REASSERTING POLICY

Andrew Mellon spent his first year as Secretary of
the Treasury frantically trying to establish policy guide-
lines in the face of an uncooperative Republican Congress
and a vacillating President. Not as yet familiar with
the ramifications of Washington politics and lacking the
support of his superior in the White House, the new Sec-
retary was often frustrated. The hectic pace of the ini-
tial period forced him.to rely heavily on Parker Gilbert
and the program they put forth appeared in a trial-and-
error fashion. It was not in Mellon's nature, however, to
yield in the face of Opposition and he displayed a remark-
able consistency in expressing and defending his plans and
ideas. With each issue, it became more and.more apparent
that the Secretary was being guided by a simple and prag-
matic philosophy of economy in government and a smaller tax
burden, a low cost program which one might expect from a
conservative banker.

With the Revenue Act of 1921 and the reductions in the

budget, Mellon received a portion of what he wanted. Though

77

ing in the

   
 

tive branc‘:
midst of t}
House deci
lican majo
promise to
colt: in a
their Den:
the offing

Il‘lOu
the ligand:
flare V05.
Plans :01
GCOanic
CODEI‘GSS
variOuSl
It would
tax red-q
Here, it

L
uonus , t

78
not the most cooperative group, Congress was at least mov-
ing in the same direction as the Secretary. The legisla-
tive branch deviated from that bit of‘harmony, when in the
midst of their deliberations on taxes and the tariff, the
House decided to act on a soldiers bonus bill. The Repub-
lican majority felt obligated to fulfill its campaign
promise to the veterans immediately and had little diffi-
culty in attracting support for such a popular idea from
their Democratic colleagues. A raid on the Treasury was in
the offing.

Though attuned to the popularity of the bonus scheme,
the Harding administration, and Secretary Mellon in partic-
ular, voiced strong objections. Perceiving a threat to any
plans for tax reduction and the continued return of the
economic structure to peacetime conditions, Mellon warned
Congress of the consequences of such an expensive project,
variously estimated to cost between $1% and$5% billion.1
It would be impossible, he said, to have both a bonus and
tax reduction, the money simply was not there. Further-
more, it would be necessary to issue bonds to pay for a
bonus, thus glutting the bond market, disrupting the govern-
ment's funding program, and increasing its expenses, for the
bonds would force a continuation of high interest rates to

make them saleable. There was also the danger that a bonus

 

1Annual Repprt of the Secretary_of the Treasury,
1921’ pp. 22 9" 31.

   
  
 

night stilt
had turned
prices mig‘:
ready tenu

might be 1’

 

purely sec
to oppose I
on the "fire
loan socic

Two ,
a rare d1
Personan
Rising th
PPESsed t
”03833

the Wart;

79

might stimulate an inflationary spiral in the economy which
had turned up after a two year recession, that commodity
prices might increase, and that business conditions, al-
ready tenuous because of apprehension over tariffs and taxes,
might be further disturbed. The argument was couched in
purely economic terms, though he opposed and would continue
to oppose any bonus design on the grounds that it was a raid
on the Treasury for the benefit of only a fraction of Amer-
ican society, five million veterans and their dependents.

Two weeks after Mellon's warning, President Harding, in
a rare display of public support for his Secretary, spoke
personally before his former colleagues in the Senate.

Urging that they defer action on the bonus, Harding ex-
pressed that “there is confessed disappointment that so little
progress has been made on the readjustment and reduction of
the wartime tax burden.'2 Shortly thereafter the Senate sent
the bill back to committee, thus killing the measure for the
special session.

With the dawn of the new year, tax reduction behind
them and an election in front of them, Congress again focused
its attention on the bonus. In the interim, Mellon had re-
mained steadfast in his opposition, but the President had
altered his, letting it be known that he would sign a bonus
bill so long as Congress provided a means of payment. With
the chief executive vacillating, the Secretary sought to

 

2New York Times, July 13, 1921.

80

pre-empt consideration of the veterans program by informing
the legislature that a deficit of around $300 million was
anticipated for the next two fiscal years. If there was
to be a bonus, ”it is clear that it must be provided for
through taxation, and through taxation in addition to the
taxes imposed by the existing law."3 Like Harding, Mellon
was putting the Congress on notice that they and not the
Treasury Department would be responsible for financing any
loan to the veterans. The President's opinion to the con-
trary, the Pittsburgh banker was developing into something

of a practical politician.“
Realizing that Congress would not easily yield to his

arguments, Mellon began a public relations campaign in sup-
port of his case. The Treasury Department sent out 120,000
copies of his letter to Chairman Fordney, 30,000 to all of
the banks in the country and 90,000 to a select list of those

who paid taxes in excess of $1,000.5 In addition, twenty-
five to fifty copies each of a favorable New York Eyening

Post editorial were sent to the governors of the Federal

 

3Annual Re ort, 1922, 329-33. See also a second
letter to Josepfi Fordney, March 11, 1922, ibid., 3hO-h5.

“Harding had once told C.S. Handin of the Federal Re-
serve Board that Mellon ”didn't know a damn about politics."

008m Hamlin MSS, Index-Di est, Manuscript Division, Library
of Congress, Vol. 6, p. IE5.

5Unsigned inter-office memorandum to Under-Secretary
(Filbert, January 26, 1933. Fordney letter of January 2h,

1922 (Soldier's Bonus) file, Official Corres ondence of the
Secretar of the Treasur , Record Group 56, National:

Archives, Box II5.

 

   
  

Reserve he
to Federal
ployed in

Congn
we, not a
of repudig
taxes and
to ignore
Conant; W

Keet
SiMe wag
Mentionefi
though he
i5E Such‘

lax idea.

he“ wet}

 

81
Reserve banks.6 Propagandizing Treasury views through letters
to Federal Reserve governors was a method frequently ems
ployed in later years.

Congress was surprised at Mellon's handling of the is-
sue, not anticipating that he would put them.in the quandary
of repudiating their promise to the veterans or raising
taxes and anger the tax paying public. An easy solution was
to ignore the dire warnings and that is what they did. No
comment was heard froerapitol Hill.

Meeting twice with the Ways and Means Committee on pos-
sible ways of raising the necessary revenue, the Secretary
mentioned that he thought a sales tax might fill the gap,
though he was quick to point out that he was not recommend-
ing such.7 The President had already accepted the sales
tax idea, repeatedly making it known that he thought it the
best method.8 A sales tax, however, lacked adequate sup-
port either with the general public or with Congress. Much
of the opposition to the sales tax emanated from.the fear
expressed by Representative James Frear (R-Wisc.) that
Mellon was proposing the tax basically to establish it as
part of the revenue system. Eventually, Frear argued,
Mellon and the other protectors of the rich would substi-

'tute the sales tax for the graduated income tax and.cther

éIbid.

 

7New Ybrk Times, February 22, 1922.
8Ibid., February 17, 1922.

more equit:

  
  
  
  

tic-as to
abandoned

'el'nen

82

more equitable measures.9

Ignoring Mellon's warnings of deficits or higher
taxes and the ”reported impending veto,” the House simply
passed the bonus bill and provided no means of payment.
Consideration had been given for raising revenues from.the
receipts of the Allied war debts, but administration objec-
tions to such an uncertain source caused this plan to be
abandoned.

When the Finance Committee considered the measure,
Mellon continued his program of discrediting it. In January,
the Treasury Department Actuary, Joseph.McCoy, presented
figures anticipating a budget deficit of $300 million over
the next two years. Three months later, the figures had
swollen to show a deficit of $215 million for fiscal 1923
alone.10 Simultaneously with a Republican caucus directive
to the Finance Committee to report a bonus bill, a third
estimate predicted revenues for fiscal 1923 to fall short
by $h80 million.11 Accompanying the last set of figures
was Mellon's ultimate threat; word was leaked that tax
increase might be necessary even without a bonus.12 As he

had before with Congress on the Revenue Act of 1921, Mellon

 

9U.S., Con ressional Record, 67th Congress, 2nd
SOSSion, 1922, II, Part 1, pp. 710-270

 

 

10New York Times, April n, 1922.
llIbid., April 19, 1922.
12

Ibid., April 21, 1922.

 

resorted

Re;
end of t
that the
fact to
mathemet
and can:
of purpc
excused
ect and
calcula

several

83
resorted to scare tactics to force his way.

Reporting the state of the nation's finances at the
end of the fiscal year, Under-Secretary Gilbert announced
that the anticipated deficit of $25 million turned out in
fact to be a surplus of $310 million.13 In some peOple's
mathematics, this amounted to a ”mistake” of $335 million
and caused many proponents of the bonus to accuse Mellon
of purposefully Juggling figures. The Secretary might be
excused in this instance, uncertainty as to the new revenue
act and the industrial revival could easily disturb his
calculations. Unfortunately, he repeated the ”mistake”
several times in the Twenties. When a spending program
with which he was unsympathetic was proposed, he spoke of
deficits, yet the talk was of surpluses when he requested
tax reduction. That every year in the decade produced a
surplus made the periodic warnings of an unbalanced budget
most susceptible to criticism. Reliable statistical infor-
mation was difficult to accumulate and the statistical
section of the Treasury found it hard to retain competent
men because of the low salaries, but the ”coincidence" of
spending-deficit and tax reduction-surplus was more than
one could honestly expect Mellon's Opponents to believe.

‘With the Secretary's warnings mitigated by the huge
surplus for fiscal 1922, the Senate concurred with the House

in late August and passed the bonus bill. Unlike the lower

 

13Ib1d., July 1, 1922.

 

chamber
it with
ized 31
viewed
and at
'interr
debts.
01
the out
the fe'
*0 the
had no
dent p
lation

0f the

pahli:

8h
chamber, the Senate ignored the objections to paying for
it with the receipts from the Allied war debts and author-
ized such a program. The Democratic-Farm Bloc coalition
viewed it as serving the dual function of paying the bonus
and at the same time guaranteeing that Mellon and the
”international banking conspiracy" would not cancel the
debts.

On September 20, 1922, Harding vetoed the bonus bill,
the only time that he ever stood up to Congress and one of
the few occasions that he supported his Secretary through
to the end. Defending-his veto on the grounds that Congress
had not provided a reasonable means of payment, the Presi-
dent repeated Mellon's argmments that it was ”class legis-
lation” and a raid on the Treasury in favor of a small part
of the total population.1h The House promptly voted to
override the veto, but the Senate sustained it by the narrow
margin of four votes. Because of the closeness of the vote,
the proponents of the bonus vowed to resurrect the issue
after the Nevember elections. The Treasury had been pro-
tected this time, but it would be up to the electorate as
to whether that protection would be successfully continued.

Mellon's unyielding opposition to the veteran's bonus
was without a doubt the most unpopular thing that he ever
did while Secretary. The volume of mail following every

public pronouncement was tremendous, with the vast majority

 

1hAnnual Repert, 1922, 3&7-51.

being c:
that D61
wrote 0:
In
Mellon .
gestion
transfe
munity
sapport
zetiona
ts if )4
llienet
t”! he
POaitic
Pament
Marlee
Wt
He110n

168.1315

85
being critical. Letters in the Treasury files indicate
that nearly every veterans organization in the country
wrote or telegraphed at least once.15

In addition to those irritated by his opposition,
Mellon angered several other interest groups with his sug-
gestions for possibly paying the bonus. The proposed stock
transfer tax brought down the wrath of the business comp
munity and when it was rumored that the Secretary would
support a tax on beer and light wines, temperance organi-
zations responded with equal vigor. For a time, it appeared
as if Mellon had successfully alienated everyone. In
alienating these non-veteran's groups, however, the Secre-
tary had used a strategem.of gathering support for his op-
position to the bonus by proposing unpopular methods of
payments, thus developing vocal interest groups to counter-
balance the veterans organizations.

While embroiled.with Congress over the bonus issue,
Mellon further jeopardized his relationship with the
legislative branch by requesting a constitutional amend-
ment to stop the further issuance of tax-exempt securi-
ties. Like so much of his program, the idea.had or-
iginated in the Wilson administration, the pet project
of Assistant Secretary Leffingwell. Under-Secretary
Gilbert revitalized the plan in the Harding administration

with a strongly worded memmrandum.to his superior during

15Official Correspondence, Boxes 117-21 inclusive.

 

A

:‘OI‘

0f x
«Dz

86
their first month in office.16 The Secretary's knight
errant on Capitol Hill, Boies Penrose, was to have intro-
duced an amendment in the summer of 1921, but the volume
of other business prevented him from so doing.17

When Mellon came out very forcefully in his first
annual report against the continued issuance of tax-exempt
bonds, Representative Lewis McFadden (R-Pa.), chairman of
the House Banking and Currency Committee, responded by
introducing a constitutional amendment.18 Appearing before
the Ways and Means Committee in January 1922, the Secretary
expressed sympathy with the principle of the McFadden
Amendment and his position was bolstered by testimony from
Leffingwell and E.R.A. Seligman, professor of economics at
Columbia and dean of American economists.

The basic line of reasoning used by the amendment sup-
porters was that the tax-exempt feature of state and local
bonds provided a tax loop-hole for persons of means. To
avoid the high wartime surtaxes, the wealthy were investing
in tax free securities. Good statistical evidence for sup-
port of that position was lacking, except that revenues

from the higher brackets were steadily declining whereas the

 

16Gilbert to Mellon, March 26, 1921, Tax-Exemption
of Municipal Securities file, Official Correspondence,
Box 158.

17Gilbert to Russell Leffingwell, May 28, 1921, Ibid.

18Annual Report, 1921. 379-81.

7'?

 

I.) I”)
O
-1
v
’1

r0 tn -
A A- ‘

It.

87

volwme of tax-exempt bonds was increasing.19 Estimates of
the value of the bonds available to the investing public
ranged from $10 to $16 billion.20

It is unlikely that Mellon expected Congress to pass
an amendment which would be an economic hardship for the
states or, if it were passed, that the states would ratify
it. What the Secretary was attempting was to force Congress
to reduce surtaxes as the lesser of two evils. The Trea-
sury believed that if surtaxes were reduced to such a point
as to make standard investments equally profitable with the
tax-exempt bonds, the wealthy would change their investing
habits and at the same time increase government income.
Mellon and those in agreement with him did not oppose the
construction of schools, recreational facilities and the
like as their critics contended. They simply saw the amend-
ment as a way to increase federal receipts, either by taxing
state and local bonds or by reducing surtaxes. That Mellon,

regardless of motive, was willing to strike out against what

 

19To help obtain the necessary evidence, the Treasury
Department had the Commerce Department include how much in
tax-exempt securities an individual owned as part of their
census information in 1923. The Treasury Department also
proposed that the Revenue Act of l92h require that all tax
payers declare their holdings in tax-exempt securities.

20The reason that the volume of bonds was increasing
was that the public was demanding more services from.the
government, especially better roads. When the federal
government failed to respond, the states and their sub-
sidiaries stepped in and used bonds as Opposed to increased
taxes to pay the bills.

-

0
g

i'

 

.w...
N... v

 

88
had been and still is a haven for the well-to-do is sig-
nificant in evaluating his financial program. The goal
was revenue, to preserve the fiscal integrity of the federal
treasury, and he was willing to do whatever was necessary
with the existing structure to increase it.

The McFadden Amendment died in committee, but new life
was breathed into it in the spring by the second ranking
Republican on the Ways and Means Committee, William Green
of Iowa. Repeating the Secretary's arguments, Judge Green
steered the amendment through committee. 0n the floor of
the House, it ran into severe opposition, as a group led
by John Nance Garner (D-Tex.) objected on the grounds that
it was an infringement on states rights. The floor manager
was a freshman Confressman from New York, Ogden L. Mills,
who in rather unorthodox fashion, had been given a seat on
the powerful Ways and Means Committee. A key participant
in drafting the 1920 Republican platform, Mills had exhib-
ited a train of economic thinking very similar to Mellon's,
and his leadership in the floor fight for the amendment
was but the first of a series of situations wherein he was
the administration's chief spokesman on Treasury bills.
After his defeat by Al Smith in the 1926 New YOrk guber-
natorial election, Mills was rewarded for his untiring
efforts with an appointment to the Treasury Under-
Secretaryship.

Fearing defeat, the Republican leadership postponed a

vote. Rather than allow it to die, Mellon immediately wrote

 

to Gree
for reb
of stet
federal

was alr

89
to Green urging adoption and providing additional material
for rebuttal of the critics.21 It was not an infringement
of states rights for the amendment would apply to the
federal government as well. The federal government, however,
was already adhering to the spirit of the amendment and,
”for the most part, has refused to have recourse to tax-
exempt issues in financing its operations. . . ." If it
could sell bonds without the tax-exempt feature, then the
states should be able to do so as well.

The letter revitalized the amendment and it went on
to pass by a comfortable margin, 223-101, with party lines
shattering as 23 Democrats crossed over to support it and
2h Republicans deserted their party. Going over to the
Senate, the amendment was assigned to the Judiciary Commit-
tee which farmed it out to a subcommittee, effectively
killing the measure for only a month remained until adjourn-
ment.

Though temporarily stymied by the Senate, Mellon had
succeeded in exciting public interest, with sentiment favor-
ing his plan, perhaps because he was striking out against
the rich. His position appeared even better when nation-
ally respected professional economists like E.R.A. Seligman,
Thomas S. Adams, and Robert Haig supported him. The only
Person of consequence outside of the Congress and state

agencies who differed with him.was the constitutional

__

21Annual Report, 1923, 376-80.

 

one mus
tovim

T1
the met
a doobi
seeuri
other ;
”pres
t0 the

the Se

90
historian Edward S. Corwin who objected to the amendment
because he thought the and could be accomplished by an act
of Congress.22 Corwin's point has some merit, but given
the continuance of the tax-exempt feature to the present,
one must conclude that the federal courts are not likely
to view such a law as constitutionally acceptable.

The margin of victory in the House indicated that when
the new Congress convened in December 1923, Mellon might be
a double winner by having surtaxes lowered and tax-exempt
securities outlawed. In the meantime, he propounded an-
other facet of the issue, that tax-exempt securities
represented an indirect subsidy by the federal government
to the states. No matter which way things went, however,
the Secretary had staged an excellent promotional campaign
to focus attention on high surtaxes and, by convincing
many people to call for the constitutional amendment, was
leading thenldown the road to support for surtax reduc-
tion. He must have smiled when reading editorials such as
the one in the New York Times which criticized the amend-
ment on the grounds that what was needed was surtax re-
duction.a3 The public was being educated for the upcoming
Mellon plan.

22Edward S. Corwin, ”Tax-Exempt Securities,” New
Republic, January 31, 1923, pp. 2u3-h5.

23New Yerk Times, November 10, 1922.

A‘J

 

Mei
branch i
had beg
pointiv
agricul
Soverno
were ag
as his
ties uil
seated,
ht’ling
the {nee
Could r

M bl

91

Mellon's troublesome relations with the legislative
branch continued over Federal Reserve Board affairs. 1922
had begun with Congressional authorization for a sixth ap-
pointive member with the understanding that he represent
agricultural interests. Though Mellon along with Crissinger,
Governor W.P.G. Harding, and the Federal Advisory Council
were against it, the President supported expansion so long
as his hands were not tied as to whom he could appoint. He
was willing to see that the agricultural sector was repre-
sented, but he did not wish to be put in the position of
having to appoint a farmer. In the end Mellon sanctioned
the measure, viewing it as the only way that the President
could reappoint Governor Harding without resistance from the
farm.bloc.2h Dissatisfied with the bill, he would not sug-

gest a veto.25

In spite of the passage of the Farm Member Bill, Congress
gave no indication of a willingness to confirm Governor Hard-
ing. Accusing the governor of causing an agricultural de-
pression because of his high discount rate policy of 1919,
Senator J. Thomas Heflin (D-Ga.) hardly let a day pass with-
out making a derrogatory remark. When Harding's term
expired in August without a reappointment, the President

told Gilbert that he was too busy with the coal strike to

2hHamlin MSS, Index-Digest, Vol. 6, lh7.

2SMellon to Harding, May 29, 1922, Federal Reserve

gparggFarm.Member on Board file, Official Correspondence,
01 e

consider
involve<
ber.

13h:
Board, 1
the iss
governo

electio

92
consider the subject.26 The President had also been too
involved with other matters to decide on the new farm mem-
ber.

Though desirous of continuing Governor Harding on the
Board, Mellon did not pressure the chief executive to force
the issue with Congress. For three months he told the
governor that everything would work out. With the November
elections bringing even greater strength to the farm bloc,
the Secretary suggested that W.P.G. Harding withdraw his
name, informing the governor that the White House feared
for the whole legislative program should Congress fight
over the reappointment.27 Not wanting to loose an extremely
capable man, Mellon later saw to it that Harding was made
Governor of the Federal Reserve bank in Boston.

Shortly after the first of the year, the President
found time to make his Federal Reserve Board nomination. To
succeed Harding, the President promoted his old friend
Donald Crissinger and Milo Campbell, President of the
National Milk Producers Association, was given the farm seat.
The ascendancy of Crissinger marked the decline of the Board.
Fighting back from its position of subservience to the
Tr°asury Department and at a moment when it seemed that it
might move in new directions, the Board was saddled with a

p°litica1 hack. Infrequently attending meetings, Mellon
\

2611mm mss, Index Digest, Vol.7, 153.
27Ibid., Vol. 6, 1h8.

93
was of no help. The Secretary had become so oblivious to
Board matters that when Edward Cunningham was nominated to
succeed Campbell who had died suddenly in the spring of
1923, he was unaware that Cunningham was a candidate.28
His earlier promise Of clearing all new appointees with
the Board had thoroughly deteriorated. The only interest
the Secretary seemingly had in the Board was the continua-
tion of a low discount rate policy. In the fall of 1922,
the President repeated his claim that one of the goals of
his administration had been the progressive reduction of
the discount rate.29 Apart from rats issues, the Secre-
tary tended to ignore the Board. When, for example, the
Board developed its Open Market Committee to coordinate Re-
serve bank purchases and sales Of government bonds, he ap-
Par'ently took little part. Mellon did not recognize, as
did some of the other members, that Open market activities
could be equally as valuable as the discount rate in ma-
niPulating the economy.

1922 also heralded Mellon's initial foray into inter-
national spheres. With the creation of the World War
Foreign Debt Commission, the chairman began the long process
of settling the foreign debt. The Commission held its first
meeting in April, and Eliot Wadsworth, Assistant Secretary

or t‘ohe Treasury, was appointed secretary to handle day to
\

281mm, Vol. 7, lgu.

h

29lew York Times, October 17, 1922.

 

L.

urtO“

at t

A

\

t

.el. t .
.a 01
t h u x
Os 0 o u
.h u are ‘1.
I‘ll ’ it

 

soda

914

day matters. His selection was indicative of the fact
that the Treasury would be the principle element in direc-
ting the settlements and a continuation of the Mellon
policy of choosing capable underlings for his staff.

Throughout 1922, several members of the Commission,
including Senator Reed Smoot, Representative Theodore
Burton (R-Ohio) and Secretary Hoover gave reassuring speeches
that they had no intention of cancelling the debts. Away
from the public, however, the Commission was developing a
flexible capacity-tO-pay formula in violation of the Con-
gressional requirements Of a minimum interest rate Of 144%
and a maximum of twenty-five years for repayment. Legisla-
tive directives notwithstanding, the Commission wanted max-
imum flexibility in their negotiations. Mellon and Hoover
were the chief proponents of the capacity-to-pay formula.30
In the words of the commission chairman: ”An instance on
a funding agreement in excess Of the capacity of the nation
t° pay would justify it in refusing to make any settlement.
No 0116 can do the impossible."31

The State Department issued formal invitations to the
"”19le debtor nations to come to Washington for settlement.

The first to respond were the British who sent Stanley
\

Depa 3C)I-iover and Mellon letter, January 6, 1923, Treasury
I'tment-Secretary file, l—I/3ll, Hoover Papers, Hoover

e S 1‘16 ntial Library.

31Quoted in Benjamin H. Williams, Economic Foreign

P
131130 of the United States (New York: McGraw Hill,

 

29),

 

 

 

81;,
Salem

WEN

i
la. ‘h

yu-1

, e '
-54P~‘
'

9S

Baldwin, Chancellor Of the Exchequer and later Prime
Minister, and Montagu Norman,Governor of the Bank Of
England. Meeting secretly in mid-January, 1923, rumors
circulated that the British would not accept the Congres-
sional stipulations as a basis for agreement and that the
Commission would not force the matter. In early February,
the Commission reported to the President that the negotia-
tion had been fruitful, the British agreeing to full repay-
ment of the rpinciple over a sixty-two year period with an
interest rate of 3% for the first ten years and 3%% there-
after. From the inception of the debt until November 23,
1923, the interest rate would be the Congressionally stip-
ulated h%%.32

Five things are significant about the Mellon directed
settlement. The first was the Obvious extention of author-
ity and the consequent need for Congressional approval,
something that might not come easily. Secondly, with the
British owing nearly 50% of the $11 billion Allied debt,
a precedent had been established for future arrangements.
Thirdly, the capacity-to-pay formula illustrates an under-
standing Of the international economic situation by the
Commission far and away exceeding that Of Congress, par-

ticularly the Democratic-Farm Bloc coalition. An

32For a summary of the British debt negotiations see
Report for the FiscallYear 1923 of the World War Foreign
Debt Commission, pp. 11-12, contained in the Combined
Annual Report Of the World War Foreign Debt Commission,
1922-26.

 

 

econom

import
could
they 1

that

96
economically strong Europe, Mellon argued, was far more
important than insisting on a payment schedule the debtor
could not meet. Fourth, the Commission hoped that though
they had made adjustments in payment procedures, the fact
that they had not altered the principle would ease fears
of cancellation. By showing the public and Congress that
they had no intention of cancellation, the Commissioners
thought they could negotiate with the remaining debtors in
an atmosphere free from criticism. Finally, an agreement
had been reached which accelerated the flow of foreign
monies into the Treasury, thus improving the possibilities
of domestic tax reduction.

Vacationing in Britain the following summer, Mellon
was greeted warmly by Prime Minister Baldwin. Reflecting
on the recent agreement, Baldwin expressed complete satis-
faction, attributing the success Of the meetings to the
fact that two businessmen, not lawyers,had conducted them.33
Some years later, when the worldwide depression made pay-
ments difficult, David Lloyd-George criticized the British-
American debt settlement as excessive. The ex-Prime Minis-
ter described Mellon as ”keen, experienced, hard, and ruth-
less” and Baldwin as ”casual, soft, easy-going,” while
characterizing the negotiations as in the nature of meetings

conducted ”between a weasel and its quarry."3h Given that

 

33New York Times, July 25, 1923.

3hDavid Lloyd-George, The Truth About Re arations (New
YOrk: Doubleday, Doran and Co., I932), p. 112.

 

the 19?
to raise
that Gre
paid out
though i
Pr
aP.9eare
proval
in the
future.
bills a
“3: DE
Senate
all Set
of the
9539 i:
roPeig
S
rOPeig
the er

Ft“3110:

97
the American public was paying 5% on the Liberty Bonds used
to raise the money for the foreign loans during the war and
that Great Britain received more from its debtors than it
paid out, Baldwin's description is probably more accurate,
though Lloyd-George's is more popular.

President Harding accepted the Commission's report and
appeared before a joint session Congress, requesting ap-
proval of the British settlement and recommending changes
in the law to make the British formula the standard for the
future. Smoot and Burton introduced apprOpriate supporting
bills and the legislature, with surprisingly little hostil-
ity, passed them within two weeks. Still wary, however, the
Senate attached a rider requiring Congressional approval of
all settlements even if they were within the stipulations
of the law. The success Of the British negotiations and the
ease in Obtaining Congressional approval reaffirmed Mellon's
foreign debt policy.

Simultaneous with the beginnings of settling the
foreign accounts was the funding of the domestic debt. By
the end of 1923, the $7% billion short-dated inherited by
Mellon had either been retired or refunded, and the overall
public debt was slashed $1% billion and now amounted to
just over $22 billion. Describing refinancing of the short-
dated debt as the "major problem of the Treasury Department”
in 1922, Mellon and Gilbert took advantage Of the improving
money market to issue securities at a declining interest

rate, thus saving the government several million dollars

 

”do a

98
annually in carrying charges.35 If retirement continued
as planned, Assistant Secretary Winston estimated that
public debt would be paid in full by 1952. Taking little
more than two years to accmmulate the bulk of the debt, it
would require thirty-five years to liquidate it.36

In later years, Mellon would be referred to as the
”greatest Secretary of the Treasury since Alexander Hamilton.”
His handling of the refunding program was to a great degree
responsible for the development of that phrase. With both
parties advocating economy in government and with assurance
given that the foreign debt would not be cancelled, the
Secretary was allowed to proceed in an atmosphere free from
criticism. The refunding scheme thus developed into one of
his most successful policies.

The difficulties Mellon experienced with Congress
spilled over into another area. The dry forces gave him.a
two year moratorium.from.criticism.before launching a cru-
sade against his prohibition enforcement policies. Little
was said until the off-year elections when enforcement be-
came a focal issue.

Though fullyaware that inducing Obedience to the dry
laws was going to be an onerous task and one subject to a

multitude of Objections from.hoth advocates and foes, the

 

35New York Times, January 1, 1923.

36The apex of the public debt came in the summer
of 1919 when it stood in excess of $26 billion. In 1916,
the debt totalled $113; billion.

 

zealou:
the at!
listen
lishin
accomp
which

more b

99
Secretary abused the moratorium. The first two years Of
Mellon's administration were spent by Commissioner Haynes
zealously spreading the gospel of success. Projecting as
the eternal optimist, Haynes informed anyone who would
listen that enforcement was improving at a rapid rate, pub-
lishing a book, Prohibition Inside and Out, to document the
accomplishments Of his bureau. Unfortunately, the public
which saw violations of law in every direction grew to ig-
nore his platitudes.

When the criticism.began to flow, Mellon and Commis-
sioner of Internal Revenue Blair, not Haynes, bore the
brunt. Haynes was accepted by the public as an honest, hard-
working man who was trying to do his duty in the face of op-
position from his superiors. In a public letter to the
President, William H. Anderson of the New YOrk Anti-Saloon
League charged that the Commissioner Of the Prohibition
Bureau was "frequently overruled and hamstrung in his efforts
by the Secretary of the Treasury."37

The President, ever responsive to public outcry, held
a Cabinet session devoted to discussion of the growing list
Of complaints. Indication was that Harding was disturbed
by the current state of affairs, but he had words of praise
for Haynes. His solution to the dilemma set a precedent
for his successors. Rather than promise increased federal

attention to the problem, he requested assistance from the

_4_

37New YOrk Times, Novemberlfi, 1922.

 

people
been a
Mellon
terity
PPOgra

l
until
nor of
flames
down 1
Tempe}
Secres
said;
°f "is
T11801
UniOn
breakE
tomeI
“vet.

“the

100
people in the form of Obedience to the law. Congress had
been niggardly about funds for enforcement and Harding and
Mellon apparently had no intentions of disrupting their aus-
terity program‘by requesting more money for a stepped up
program.

The volume of criticism.decreased for almost a year
until the autumn of 1923 when the Republican reform.gover-
nor Of Mellon's home state, Gifford Pinchot, rekindled the
flames by declaring that enforcement had completely broken
down in Pennsylvania.38 At the same time, the Board of
Temperance Of the Methodist Episcopal Church denounced the
Secretary and Blair. Haynes was without authority they
said; perhaps Blair should be removed.39 Accusing Mellon
of "indulging in the illegal liquor traffic,” Mrs. Elizabeth
Tilson of the Massachusetts Women's Christian Temperance
Union referred to him and Blair as "those contemptible law
breakers.'ho In attempting to refute the charges, the
former part-owner of Overholt Distillery Company was given
a vote Of confidence by Washington's best known ”dry,“
Wayne B. Wheeler, General Secretary of the Anti-Saloon
League.h1 If the charges were true, prohibitionists would
wonder what Wheeler was doing for than.at the Capitol.

That Mellon was becoming sensitive to the wealth of

3Q;ggg., October 29, 1923.
393113., October 22, 1923
“093g” October 19, 1923.
h1;p;g., November 7, 1923.

101
disparaging comments was illustrated in his Annual Report
for 1923. Previous reports devoted a few glib generalities
of less than a page each to enforcement, but the 1923
volume gave more extensive coverage to the subject and pre-
sented a series Of statics in an attempt to substantiate
Haynes's claims of improvement.“2 Shortly before the pub-
lication Of his third report on the condition Of the Tree-
sury Department, Mellon deviated slightly from his economy
in government platform and requested an increase of $1%
million in the Prohibition Bureau's budget. Out of a
federal budget of more than $3 billion, the modest sum of
$10 million, less than 1/3 Of 1%, was to be spent in elimin-
ating illegal traffic in liquor, America's most rapidly
growing social problem.

Perhaps the most important item to come out of the
1922-23 period with reference to Mellon personally was the
Secretary's coming of age as a politician. In his brief
political life, he did all that he could to avoid direct
involvement, prefering to work behind the scenes with Frick
and other interested people. When he agreed to come to
Washington, he had no intention of deviating from that
practice. The sudden deaths of Senators Knox and Penrose in
the waning months Of 1921, however, forced him into the
political limelight as the ranking national figure in

Pennsylvania Republican circles. For a soft spoken, shy man,

 

haAnnual Rgport, 1923: 37-39.

 

it we

102
it was an awkward predicament.

Mellon's initial reaction was to skirt involvement by
having Governor Sproul appoint Republican State Chairman
William E. Crow to serve the remainder Of Knox's term.
HOpefully, Crow would fill the void, but ill-health made it
impossible for him to run for a full six year term. When
the Crow move proved a failure, the Secretary tried another
tact, reverting to his traditional policy of choosing cap-
able and usually younger men on whom he could depend. In
this case, David A. Reed, son of Judge J.H. Reed, Mellon's
longtime advisor and Knox's law partner, was put on the
1922 Republican ticket. Though he had no political exper-
ience whatsoever, the younger Reed had a reputation of being
a brilliant attorney and skillful debater and could be ex-
pected to act for Mellon on Capitol Hill. To act as his
spokesman and handle day to day matters on the state level,
the Secretary designated his nephew William Larimer Mellon.

In the spring of 1922, W.L. Mellon negotiated what was
known in Pennsylvania politics as a "harmony” deal with the
Vare brothers, inheritors of the Penrose machine in Phila-
delphia. If Reed ran unopposed in the Senate primary, the
Mellon factions would support Vare's candidate for gover-
nor and, in the Keystone State, the Republican nomination
was tantamount to election.“3 These well-laid plans were

spoiled, however, by the old Bull Moose Republican,

 

hBNgw‘YOrk.Times, April 5, 1923.

 

 

Gifford

ootar

103
Gifford Pinchot, who running on an independent ticket, eked
out a narrow victory in the gubernatorial primary.

The Mellon-Vare forces did not Oppose the maverick
Pinchot in the fall elections. An uneasy caLm prevailed
for nearly a year. In the meantime, Reed.handily won his
Senate seat and was rewarded with seats on the Foreign
Relations and Finance Committees. A Philadelphia lawyer,
George Wharton Papper, was elected for the remainder Of
Penrose's term and was put on the Banking and Currency
Committee, another place like the Finance Committee where
a Pennsylvania Senator could be valuable to the Secretary.
Pepper also was elected National Committeeman.

While having two Senators amenable to his way Of think-
ing, Mellon was faced with a rebellious Congressional dele-
gation. The Pennsylvania Representatives had broken with
the Harding administration over patronage matters after the
deaths of Knox and Penrose. In the spring of 1923, Reed and
Pepper caucused with the state legislature, hoping to achieve
local support so as to bolster their position with the
Representatives. The meeting ended without a firm agreement
and the Mellon machine was left with a threatening situation.uu

Upon the death of President Harding, Reed and Pepper
joined with their fellow Republicans in the House in sug-
gesting that Pennsylvania send an uninstructed delegation

to the l92h convention. The logical result would be support

 

uh ide, Arpil ”18, 1923e

«aqua:

-N .1-“ .l‘l l.-l'.l I

. -------l...—'o

 

for P
Pinch
not r
aspir
and a
to Cl
fore:
and E
reque

“Gals

clay.
the :
in p

tenu

Pro:

10h

for Pinchot as a favorite son. Mellon liked the idea of
Pinchot as a favorite son and suggested that the Governor
not run against Coolidge in the May primary.“5 Having
aspirations for the White House, Pinchot ignored Mellon
and asked that a delegation instructed in his favor be sent
to Cleveland. In a rare move, the Secretary held a con-
ference in his Treasury office with Reed, Pepper,‘W.L. Mellon,
and State Chairman W. Harry Baker to discuss the Governor's
request.h6 Indications were that the regular Republicans
would not accept an instructed delegation for Pinchot.

Three days after the Washington meeting, Pinchot de-
clared war on the Mellon faction by vigorously denouncing
the Secretary for the breakdown of prohibition enforcement
in Pennsylvania. Their political relationship had been
tenuous since the 1912 split; now it was completel severed.
For the next three years Mellon would struggle with Pinchot
for control of their state, while the Vares sat idly by as
interested observers, perhaps with the knowledge that their
well-Oiled Philadelphia machine could defeat either of the
protagonists in an intra-party fight.

The short session of Congress ended in March, 1923.
Mellon had spent exactly two years sparring with the legis-
lative branch, for one issue had led directly tO another

without a moments rest. In his eleven years as Secretary

itsIbid., October 5, 1923.
l“’Ibid” October 26, 1923.

".— ' L'b 'O- '- AL!-

 

of th
perio
ment,
ation
perio
ner r
or hi

order

Mellc
While
orga;
£331:
in a
bilit
part1

Rapti

105
of the Treasury, the Pittsburgh bankers most laborious
periods were when Congress was in session. During adjourn-
ment, he concerned himself simply with the day to day oper-
ations of the Treasury. In many respects it was a vacation
period and the Secretary often sailed to Europe for a sum-
mer respite, secure in the knowledge that Parker Gilbert
or his successors as Under-Secretary would keep things in
order.

In the summer between the 67th and 68th Congress,
Mellon went on his first European cruise as Secretary.
While he vacationed, his alter-ego Gilbert, effected a re-
organization Of the department. The various duties of each
A8Bit-atant Secretary were realigned to streamline Operations
in a more precise, businesslike way. Treasury responsi-
b1llltzies had increased tremendously in the last decade,
p‘-='=‘t:‘:i.o.':u1arly with the inception of the income tax and the
"I‘time growth experienced by all government agencies.
"119!) Mellon returned, two new Assistant Secretaries would
b9 appointed and Garrad: Winston would be moved up to Under-
SecI‘etary. With the retirement of Gilbert, an era would
°1°ae , but he could leave satisfied, knowing that he had
11“: an influence on policies that would continue intact for
"1°ther eight years.

During this general period, though not in the above
root‘Sanization David Finley was promoted from the staff of
“1° War Finance Corporation to the post of personal assis-

t‘ht to the Secretary. Finley's role in Treasury affairs

 

is di
item

was 6
depar
visor
faile
Finle
sador
by be
Art 1

by t‘:
Pathe
Sroui
ity.I
aDect
dent!

D0 dc

106

is difficult to define, but of the records retained, every
:1.th of any import that crossed Mellon's desk after 1923
was either written or initialed by him.’47 After Gilbert's
departure, he appears to have assumed the mantle of ad-
visor and confidant as the new Under-Secretary, Winston
failed to develop the relationship his predecessor had.
Finley remained with Mellon through his service as Ambas-
sador to Great Britain and was rewarded for his devotion
by being made first director of the National Gallery of
Art: in 1937.

The Secretary's Continental vacation was interrupted
by the news of President Harding's death. Mellon issued a
Pfither terse statement, saying that ”there was evident a
growing confidence in his Judgment and in his sincer-
1ty-”h8 Though he personally liked Harding, Hellon's re-
l'pect for him as chief executive was wanting. The Presi-
dent 's repeated failure to support his own Cabinet member
no doubt broadened the gulf between them, yet when he re-
ferr.d to a growing confidence, he may have been speaking

p6”sonally in view of the President's belated assistance on
\

181:1 1471;, an interview with the author, Finley professed
ho orance of Treasury Department matters, contending that
So was merely a functionary acting at the behest of the
Nocretary. The records, however, tell a different story.
“Idol-'16 saw the Secretary without first going through him
11:; 11: was Finley who passed on all directives to under-
88 - More importantly, it was Finley who followed up

on dOcisions to see that they were carried out.

halew York Times, August, 1923.

 

the ho
Secret
'1 am

any co

formed
nediat
funera
was "a
lad ag
0f the
Weeks,
lest A

illust

C1

and. r
The De

coneg

107
the bonus and British debt settlement. In evaluating the
secretary's opinion of the President, W.L. Mellon wrote:
"I am sure that A.V. would never have hired Harding to run
any company in which he was interested."u’9

Wiring the story of Harding's passing, Gilbert in-
formed his superior that there was no need for him to im-
mediately return, that the Under-Secretary would attend the
funeral for the Treasury. He added that the new President
was "well informed and absolutely sound” on taxes, the bonus,
and. agriculture, and enthusiastic about Mellon's handling
01' the Treasury.50 Mellon remained in Europe for two more
weeks , sightseeing and generally having a good time while
mofit Amaricans were mourning their dead President. It was
1lluatrative of his opinion of Harding.

Upon his return, Mellon met with President Coolidge
and, following accepted tradition, offered his resignation.
The newspapers reported that Coolidge favored his old
°olloge friend and currently a partner in J .P. Morgan and
°°lnpany, Dwight M. Morrow, for the Treasury post.51
Coolidge, however, rejected the idea.

Senator GM. Pepper has written an idealized verson

or the first meeting between Mellon and the new President.
\

“9W.L. Mellon, Judge Mellon's Sons (n.p., 191w),
1" #32.

A.“ soGilbert to Mellon, August h, 1923, Secretary
~ Idellon file, Official Correspondence, Box 213.

51New York Times, September 16, 1923.

 

Afte
plat
of t.
know

desc

ti
3r

out

108
After chatting for awhile, Pepper related, ”Mr. Coolidge
plunged into a discussion of the entire financial system
of the government and displayed an accuracy and breadth of
knowledge which took Mr. Mellon by surprise."52 Gilbert's
description that Collidge was ”sound” was probably more
accurate than Pepper's glamorization. In any reapect,
Mellon and Coolidge were to work in tandem for the next
five years and the Secretary would develop a relationship
with the President that few Cabinet members ever enjoy.
Near unanimity between the two appeared on all matters, be
they Treasury related or otherwise.

Assured of his position in the Coolidge administra-
tion and with the understanding that the President was safe
on taxes, Mellon spent the fall of 1923 preparing the
final form of his tax plan for Congress. In one of his
last official duties, Under-Secretary Gilbert directed the
1I"~"-‘t:.’i.al drafts of what was to be known as the Mellon Tax
Plan. Having spent two and a half years expressing his
ocohomic philosophy in various policy decisions, particu-
larly in the battle over the constitutional amendment to
prevent further inssuance of tax-exempt securities, the
seer‘e‘tary had given the public a fairly good idea of what
to eJK‘pect. Until the Presidential campaign began, and

P°Phaps even then, the Mellon Tax Plan would be the
\

52George W. Pepper, Philadelphia Lawyer, An Auto-

31.0 re h (Philadelphia: —J.B. L'Ippencott 00-» 19mm

princi
had be
determ

excite

109
principle tOpic of conversation in America. The public
had been slowly and subtley educated; now it would be
determined how well it had been educated. A feeling of
93:0 itement was generated as the country awaited the Sec-

retary's letter to the Ways and Means Committee.

CHAPTER IV
MELLONIZING AMERICA

Tariff bills have traditionally been named for their
3ponsors, but federal tax legislation has lacked personal
identification, simply accorded the title of Revenue Act
of whatever year. The reason for this distinction seems
to be the general acceptance of the concepts that the
tariff increases the government's coffers at the expense

of foreigners whereas domestic levies must come from the

purses of taxpaying Americans. As a consequence, poli-

ticians have sought association with the various tariff

programs and have avoided personal relationships with tax

bills. By 19214., however, a new situation presented itself

as one of the few instances of tax reduction in the nation's

history was imminent. The Secretary of the Treasury was

seeking to induce Congress to accept what he termed
”scientific revision" of the tax structure and he promoted

Personal identification with what the public soon began

calling the Mellon Tax Plan. For nearly three years, he

had educated the country to prepare it for reception of
his scientific program.
On Amnistice Day 1923, Andrew W. Mellon announced the
details or his tax plan in a letter to the new Chairman 01'
_110

111

the House Ways and Means Committee, William R. Green.1
Laying out a twelve point program, the Secretary reit-
oratad his wishes for modification of the surtax schedule,
3 uggesting a reduction of the maximum rate from its cur-
1.erit level of 50% to 25%. With the highest surtax being
25%, Mellon had argued that ordinary business investments
would be equally and perhaps more profitable than holding
tax-exempt securities. In keeping with his promise that
his plan was scientifically motivated and to avoid charges
of favoritism to the wealthy, he recommended a halving of

the normal taxes and the repeal of several nuisance taxes

that fell heaviest on the lower brackets. There was also

to be a 25% tax reduction on income that was earned. A
series of administrative amendments designed to simplify

operation of the law and minimize tax evasion were included

too. Finally, in a move not likely to make friends in the

business community, the deduction for capital losses was
to be limited to 12%, equal to the tax on capital gains,
rather than up to 100% as currently was law. The Score-

tary had wondered why the government should take one-eighth

0f the profit, but assume all of the loss. The tenor of

the prOgram was in keeping with the ideas on tax reform
that Mellon had propagated since taking office and was not

markedly different from his suggestions for the Revenue
A013 of 1921.

k

1
.Lnnual
1923, pp. b-lfgeport of the Secretary of the Treasury,

112

The publication of the Green letter was accompanied
by a surprised reaction in Republican circles. The general
outline had been expected, but no one believed Mellon
'v613l11d request such a radical reduction in the face of
C3<>xagress which was presumed to be less than friendly to his
e><3<>nomic philosophy. With the Democratic-Farm.Bloc in a
I><>saition to control both.houses, it had been thought that
titiea Secretary would suggest a gradual lowering of surtaxes
so as not to endanger his whole program. Furthermore,
Chairman Green, a Republican with an independent mind, had
giVen a lukewarm response to the idea of tax reduction at
this time, let alone the magnitude Mellon had described,
and Chairman Smoot of the Finance Committee had talked of
an increase to pay the anticipated soldier's bonus. A
=3‘tzziunch supporter of the sales tax, Smoot was touting it to
pay the bonus.2 Mellon also stunned the Congress with a
I"""EBIDetition of his 1921 maneuver of refusing a reduction if
1:]tlea bonus passed. The composition of the 68th Congress
36armed to make the bonus a certainty and many believed the
SeCnretary to be unrealistic in his proposition. To make
the legislators choose between the ex-service men and the
t;*i:x: payers in a presidential year cause near apoplexy in
thfi Republican delegation.

When President Coolidge signed the Revenue Act on
\

a 2New York Times, July 3 and September 9 and 23, 1923
lhd ”Less Prospect of Less Taxes," Literary Digest, July 21,
923, p. 120

 

exces
over
than

i 313

into

113
June 2, 1924, all of the fears of the administration
Republicans had been confirmed. A coalition formed to
destroy the Secretary's propositions and to write its own
tax measure. Instead of 25% maximum surtax on incomes in
excess of $100,000, Congress voted a h0% levy on those
over $500,000. The normal tax was set at a lower level
than recommended and personal exemptions were increased,
a subject the Secretary had made no mention of.

Victorious on principle issues, the coalition charged
into new areas. The estate tax was raised from a maximum
170 25% to ho% and a gift tax was included to prevent
e‘F'asion. In a slap at the Secretary, the coalition pro-
vided that the new Board of Tax Appeals be independent of
the Treasury and added a clause allowing for limited pub-
lZ'Lcation of tax returns. Adding insult to injury, Congress
a"J‘tzhorized a bonus plan over a presidential veto and re-
53¢:th the constitutional amendment referring to the pro-
1:“3:“L":3:l.t:.ion of tax-exempt securities. Mellon had clearly suf-
fel"ed a stinging defeat as all of his ideas for "scien-
t:1~1?ic" tax reform were cast aside. Three years of prepar-
ation had gone for naught.3

It took Congress seven months to construct its own

economic program. At various stages in its passage,
\

at: 3For a complete discussion of the Revenue Act of l92h

Trlci its passage through Congress, see R.G. and 0.0. Blakey,
‘3 Federal Income Tax (New York: Longmans, Green and Co.,

TE;II—(5), pp. 223-50 and R.G. Blakey, "The Revenue Act of

1921+,” American Economic Revue, September 1921;, pp. h75-505.

 

some <
to $1".
but u
Eellc
Data:
retuz
The E

belie

11h

provisions were added that were even more repugnant to
Mellon than the final draft. Odgen Mills in the House and
Reed Smoot in the Senate made valiant efforts to preserve
the Mellon Plan intact and were successful in altering
some of the more obnoxious changes. Sending his opinion
to the President, the Secretary expressed disappointment
but would not suggest a veto.“ Collidge, sympathetic to
Mellon's position, included a veto message with his sig-
nature. Congress was told that the administration would
return to continue the fight for scientific tax reform.
The Revenue Act of 1921; was a defeat, but they did not
believe they had lost the war.5

On the surface, two things appeared evident in the
Revenue Act of 1921;, and in Mellon's relation to it. The
first was that the Secretary was being naive in expecting
to realize his plan at the hands of an unreceptive Congress.
TIE-e second was that the act as passed was more beneficial
to the lower incomes than the Mellon Plan, thus substan-
t iating the traditional charges that the Pittsburgh banker
designed his programs to favor his well-to-do peers.
Those, however, are only surface phenomena; a more extensive
analysis reveals that they are half truths.

As for the seeming naivete', Mellon had several assets
\

<1 “Mellon to Coolid 6, May 30, 192k, File 21, Presi-
~fle\ntial Papers of Calv n Coo idgg, Manuscript Division,

brary of Congress .

5Annual Report, 192a, zen-67.

 

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115
in 19214 that were lacking in 1921. His most important
resource was the weight of public opinion. By seizing
the initiative with the Green letter, he had almost two
months to proselytize before the opposition solidified.
His educational program was accelerated. The Treasury
Department sent multi-copies of the Green letter to sig-
nificant businessmen and Republicans around the country,
men who were sympathetic to the Secretary's line of reason-
ing; and who could be depended upon to preach the gospel in
their own area.6 The press proved receptive to his ideas,
and they conducted a saturation campaign in support. A
var iety of individuals and organizations offered assistance,
the most important of which was Major John F. O'Ryan's
c:Z‘L‘t:izen's National Committee in Support of the Mellon Tax
Reduction Proposals. Its membership included such notable
economists as Frank W. Taussig, Charles W. Bullock, Thomas
S - Adams, and E.R.A. Seligman. J.A. Arnold and the ”non-
I“artisan" America Bankers League pressed for passage and
Hollywood magnate, E.F'. Albee, nationally circulated a
cartoon favorable to the Mellon Plan on the Keith theatre
circuit? All of the pro-Mellon groups gathered together
for an intensive public relations campaign during their

Bel.t'--proclaimed National Tax Reduction Week, April 6—13,
\

f1 6See assorted letters in Mellon Tax Reduction Plan
a le, foicial Correspondence of the Secretary of the Trea-
w, Records Group 55, Natfomfl: Archives, Box l71.

B 7Garrad Winston to E. Albee, January 12, 1921),, Ibid.,
01: 173.

 

1921;.
public

quent

116
19214. The Secretary participated in the drive to sway
public opinion by encouraging his supporters, issuing fre-
quent press releases during his Congressional lobbying, and
a series of articles in assorted magazines and Journals.8
All of his arguments were gathered into book form by David
Finley, appearing in late Arpil under the title, Taxation:

 

The People's Business.9 No idea was left untried in taking

the campaign to the people. If Congress was reluctant, per-

haps a public clamor would force it to change its mind.
The success of his campaign can be measured in three
Ways. First was a crude survey of fifteen million people
conducted in early March, 192).; by the LiterarlDigest.
01‘ the two million plus who responded, 70% voted in favor
or the Mellon Plan.10 An assist to the Treasury in de-
termining points where more pressure needed to be applied
wile the breakdown of the vote into Congressional and Sena-
t'ZI'I-ial districts. Second, the volume of mail, heavily

“9 ighted in support of the Mellon Plan, received by the
\ T

8Andrew W. Mellon, ”Taxing Energy and Initiative,”
\Ihdependent, March 29, 1921;, p. 168; A.W. Mellon, "The
Business of Taxation,” Forum, March, 1921;, pp. 3b,)4-u8;
th A.W. Mellon, ”High Surtaxes' and Municipal Securities,"
$3ican Cit , March, 1921+: pp. 239-h0 are Just a sample.
b ere were a so several very favorable magazine articles
tased upon personal interviews with the Secretary, some-
hing he was not in the habit of doing.

Y 9A.W. Mellon, Taxation: The Peo le's Business (New
aork: The Macmillan Co., I921“. For evidence of Finley's
Outhorship, see his memorandum to Under-Secretary Winston
r April 11, 19214 wherein he states: "I have completed the
Ehuscript." Mellon Tax Reduction Plan-«Book published by
e

B Macmillan Co., l92u-1929 file, Official Correspondence,
°3E 176.

:1 loLiterar Di est, March 22, 1921;, pp. 5-8. The
nal taIIy was I,E52,002 yes and 6hl,980 no.

117

Treasury Department, White House and Congress was phenom-
enal. Thousands of people wrote to Washington to express
an opinion, but the inspiration for their writing often
came from their employers. All General Motors Corporation
employees and stockholders, for example, received a letter
from their president John J. Rashob urging support for the
Treasury plan and asking them to write letters.11 The
third measure, of course, was the reaction of Congress

whi ch disregarded public Opinion and responded negatively.
Opp osition legislators such as House Minority Leader Garner
3hr ugged off the letters as ”an organized conspiracy (which)
attempts to coerce Senators and Representatives to support
the Mellon tax bill before they have had an opportunity to
St udy or understand its provisions."12 In this instance,
the majority of the members of Congress rejected the
Burke'an concept that he should mirror his constituency for
a broader interpretation of doing what they thought best
it) spite of public opinion.

That taxation was not much of an issue in the 19214
campaign indicates that neither Mellon nor Garner, neither
the Republicans nor the Democrats believed that they really
had public opinion on their side and as a consequence could

°all for a mandate. By the time the Revenue Act of 192b,

\

0 11Contained in Mellon Tax Reduction Plan file,
gicial Correspondence, Box 171.

S 12U.S. Congressional Record, 68th Congress, lst

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was signed into law, the populace had become completely

befuddled by all of the publicity and rhetoric. Their re-

sponse to its passage was apathetic, their former enthusi-

asm crushed by the confusion of figures bandied about by

the politic ians .
Another aspect of the Secretary's push for his tax pro-

gram that has great significance was his relationship with

the new President; Coolidge would not desert Mellon as

Harding so often had. Beginning with his first message to

Congress, the ex-Vice President made it clear that he gave
his "unqualified approval" to the Mellon Plan.:"3 As the
Opposition solidified, so did Coolidge's confidence in his

Secretary. In a nationally broadcasted Lincoln Day Ad-

dress, the President emphasized that he would not accept
any alteration in the principles of the Mellon Plan; that
13 , he stood by the 25% surtax level.u* When the bill was

lost in the House, he pressed for victory in the Senate and
cO<>perated with Smoot, a convert, in having the Finance

c<>Inmittee report a bill which was a near carbon copy of the

beasury suggestions. Not as apprehensive of the Congress

as Harding, Coolidge consistently used the prestige of the
White House to influence legislation.
The unanimity of opinion between the two on taxation

8Dread to all issues in which they had a mutual interest.
\
13New Ybrk Times, December 7 and 11, 1923.

1hIbid., February 13, l92h.

 

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So much so did they agree on economic issues, and they
both had a tendency to translate everything into economic

terms, that many contemporaries began to believe Coolidge

was a tool of Mellon. Invading the Secretary's hometown

during the 19211 campaign, the Progressive Party candidate
for President, Robert LaFollette, unequivocally stated:
”Andrew Mellon is the real President of the United States.
Calvin Coolidge is merely the man who occupies the White
House."15 That opinion has persisted, continued to a great
degree by William Allen White who in his biography of
Coolidge remembered that ”so completely did Andrew Mellon
dominate the White House that it would be fair to call the
administration the reign of Coolidge and Mellon."16

The available evidence, however, proves no more than
thgt Mellon and Coolidge's thoughts were harmonious. A
close personal and ideological relationship did exist, but
there is nothing to show that the Secretary was wearing a
P‘th between the Treasury and the White House in his untir-
ing effort to dominate the President.17 A recent biographer
01‘ Coolidge, Donald McCoy, has written:

I do not think it can be argued that Mellon

controlled Coolidge. He was, of course, influ-

ential with the President, patently because
their personalities meshed and because

lsIbid., November 1, 192h.

G 16William Allen White, Puritan in Babylon (New York:
‘pricorn Books, 1938), p. 23f.

17Harvey O'Connor, Mellon's Millions The Bio a h
01‘ a Fortune (New York: Blue Ribbon Books, I933}, p. 130.

 

120
fundamentally they agreed on tax and debt re-
duction policies. It was a happy situation
for the two of them, for Coolidge needed Mellon's
technical knowledge andlgellon needed Coolidge's
confidence and support.
In his analysis of Presidents and their Cabinets since
1912, Richard Fenno saw Mellon as a dominant factor on eco-
nomic issues, but that Secretary of State Hughes acted in
the early Coolidge years as a premier of sorts, being con-
sulted on a wide variety of issues.19
Coolidge, it seems, carried on the Harding policy of
maintaining a Cabinet of the I'best minds ," men on whom he
could rely for advice. The Secretary of Treasury's role
Should not be minimized, but there is nothing available to
show that he was Coolidge's Colonel House or Harry Hopkins.
The President listened when Mellon spoke, but there does not
fippear to have been the degree of interaction between them
that is illustrative of a truly intimate relationship.
Crucial to one' s understanding of why Mellon acted as
h- did with reference to his tax plan, and revealing of
s<=Ilmething of the essence of the individual, was his firm
°°nwiction in the righteousness of his cause. Though the
°°1Po of the Mellon Plan had its roots in the Wilson adminis-
tl‘Qtion, the Secretary, by 19214 if not sooner, has absorbed
theme ”Democratic” ideas as his own. Believing that his

P1“ was logical and scientifically based, he continually

\
J'eLetter from Donald McCoy to author, January 8, 1969.

(C 1‘(Richard F. Fenno Jr., The President's Cabinet
anhridge, Mass.: Harvard University Fees, 1956!, p. 117.

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121
plunged into battle with Congress.

The case for surtax reduction is particularly indica-
tive of the crusader fighting a holy war. In every public
or private statement, he reminded people of the need for a
drastic lowering of surtaxes. Statistics compiled in his
office proved, he argued, that the high rates had made the
surtax unproductive and that the alarming increase in the
volume of tax-exempt securities was partially caused by
people seeking them.tor purposes of tax avoidancenzo But
scientific tax reform did not mean simple reduction; it
meant establishing a rate which would produce the most
revenue while distributing the burden as equitably as pos-
sible. He ignored as illogical, mathematically incorrect,
and morally wrong, the arguments that surtaxes should be

very high so that the wealthy, these best able, would bear

the burden of taxation. The scientifically correct level
should be 25%, the point where the return from.the tax-
exampts equalled that of a normal business investment. He
took refuge in the opinions of men like Yale economist
Thomas S. Adams, an expert in public finance, who said
that to lower the surtax rate to u0%, as Congress did,
would be ineffective. It would be like cutting the dog's

tail off by inches for further reduction was necessary,

and to make the cuts gradually, prolonged the inevitable.21

 

20See Annual Re ort, 1923, p. 12 for figures on sur-

taxes and Annua epor , 192k, p. 10 for figures on tax-
exempt seour t es.

21New York Times, February 3, 192h.

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122
When other statistics seemed to prove that tax-exempt
securities were not a haven for wealthy tax avoiders, he
accepted his own figures as being of superior quality. The
Secretary was convinced that he was right and would not be
swayed by argumentation. With the support and counsel of
the nation's leading economic minds, especially Adams and
E.R.A. Seligman of Columbia University, he resisted all
challenges, believing that his oppositon was engaging in
politics instead of bi-partisan, ficientific tax reform.

As for estate and gift taxes, areas where he did not
have the great minds on his side, Mellon had to rely on
his own brand of logic. Lacking meaningful statistics to
buttress his position, the Secretary openly revealed his
personal and class prejudices in developing his case against
these taxes, something that was not as obvious when he dis-
cussed the facets of the income levy. The estate tax, he
said, was a capital tax, a violation of the maxims of pro-
gressive taxation which would result in forced sales and
lower revenues. Furthermore, high estate taxes confiscated
wealth, something that no tax should do. Turning to tra-
dition, Mellon pointed out that the federal government had
only resorted to estate taxes as wartime expedients,
leaving them to the states during normal periodsr A peace-
time federal estate tax would rob the states of necessary
revenues. His class prejudices were made quite plain when
he stated his belief in the adage of ”shirtsleeves to

shirtsleeves in three generations ," himself living proof

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123
that the adage was an old wive's tale.?‘2 His reasoning
against the gift tax rested on the same premises for he
agreed with its supporters that it had only been written
to prevent estate tax evasions.

The validity of Mellon' s thinking is open to question,
especially in examining his basic assumptions, but it is
not the purpose here to go through each point and evalu-
ate it. One can safely assume, however, that the Secretary
regularly had the support of the best known economists of
the pried. The orthodox economists of the 1920s, T.S.
Adams, R.B.A. Seligman, Frank Taussig, Charles J. Bullock,
v.3. Burgess and others, found solace in the administra-
tion program of steadily lowering taxes, accompanied by
progressive dimunition of the domestic debt.23 Except on
the foreign debt question, very few took issue with Mellon
find, when they did, it was usually over a specific point
and not the whole program or perhaps they accepted his
conclusions but disputed his reasoning. Consequently, to

have expected a materially different program from the

k

222Mellon, People's Business, pp. 111-27.

23Joseph Dorman, The Economic Mind in American Civ-
ilization Vol. 11., (New or : e ng ess, ,
PD. - 3. Dorfman also gave an interesting cement on
the overall situation. "In retrospect, the striking feature
°r the nation's public finance picture was the light burden
°r taxation and the recurring federal annual surpluses.
’ . . In contrast, almost all other highly industrialized
°°untries were carrying a much higher burden of taxation
during the period." (p. '47) Taking the case a step further,
Dorman noted that ”the taxes paid by those in the lower
brackets were negligible.“ (p. 14.8).

12b,
Secretary would be to expect him to be unorthodox, some-
thing he never could be. One can argue ,and J.K. Galbraith
has, that there was a lack of substantial, intelligent eco-
nomic thought in the 1920s, but there was nothing the Trea-
sury could do to alter that element 3 it could only work

within the established systemfih An important factor to
note on all of the is that most of Mellon's antagonists

were in Congress, and he had some justification in casting
off his critics as politically motivated when they were un-
able to produce the same quantity and quality of economic
thinkers as he.

Though one may question Mellon's reasoning, it is more
difficult to question his sincerity and honesty. Two of
his contemporaries, Frank Kent and Silas Bent, men who
disagreed with his economic philosophy and were want to
criticize him, accepted him as a man of integrity, with the
latter concluding ”that Mr. Mellon is the sincerest man in
public 111'. today."25 This attitude projected throughout
the Journalistic world, with only politicians and his-
torians picturing him as a stealthy figure with flexible
Principles.

In the area of taxation, for example, his honesty and

 

2(“John Kenneth Galbraith, The Great Crash (Boston:
Housman, Hifflin Co., 1951;), pp. - .

25Silas Bent, Stra e Bedfellows A Revue of Politics
PGiranonalities and tHe finess (New York: fiorace IIverIEt,
15:85, p. El and Frank Kent, ”Andrew Mellon,” New Republic,
Karen 29, 1926, p. 135.

12S
integrity surfaced. Contending that hard work, thrift and
private enterprise had made America great, he believed that
productive individuals should not be penalized or discour-
aged by excessive taxes. Conversely, he did not think that
wealth should escape its Just proportion of taxes. His
fight against tax-exempt securities, his desire to raise
corporation taxes by 50% in 1921 (against the wishes of Con-
gress, his anti-business suggestion for limitations on tax
deductions for capital losses, along with his willingness
to pay $1& million in personal income taxes in 1923 and $1 3A;
in 1921; when he could have avoided a great part of them by
investing in state bonds and other legal devices are strong
points in support of his claim for establishing rates on the
ability to pay principle.26 Though the heart of the l92h
Mellon Plan was surtax reduction, the Secretary insisted, as
he had before and would again in the future, that the burden
of taxation be lightened in all income brackets.

Suggestion has been made that he requested across the
board reduction in 1921;, in order to gather support, show-
ing him responsive to public opinion and in no way proving,
beyond innuendo, that he was going against his principles
in making such a suggestion. Bis recommendations in 1921
did not include a general tax reduction not because he was
“hmympathetic to those of modest means, but because the

“Opressed economic situation placed a priority on the

‘

26New York Times, September 2, 1925.

126

repeal of the excess-profits tax and a lowering of the
surtaxes, two things he believed would stimulate the econ-
omy. He expected that the lower brackets and non-paying
groups would be helped by improved employment. That the
economy did perk up, with corresponding increases in employ-
ment and real wages, appears to bear out his contention.

Secure in his own mind that he was right, Mellonhad
made his reconcndations for the Revenue Act of 1921;.
Claiming that taxation was ”just like any other business ,"
he believed that he need only inform the taxpayers of the
facts.27 This business of taxation must be approached in
a non-partisan, scientific way, and he hoped that his
critics would be swayed by his statistical presentation.
Employing emotional argumentation as well, the Secretary
stressed the bi-partisan antecedents of the Mellon Plan,
but he failed to fully capitalise on this approach. His
Democratic predecessor David Houston had written that he
”strongly endorsed the proposals and hoped that the nation
would not be misled by those ignorant of finance ," but the
Secretary neglected to include this item in his promotional
campaign.28 When the coalition rejected all of his argu-
I“-ents and wrote its own bill, Mellon was crushed. Writing

the President, he said that ”as a permanent expression of

~

27AM. Mellon, ”The Business of Taxation,” Forum,

web, 1921'», De Bull-e

R 28Houston to Mellon, December 17, 1923, Mellon Tax
fiduction Plan file, Official Correspondence, Box 172.

 

 

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127
Government fiscal policy, the bill contains provisions
which, in my opinion, are not only unsatisfactory but are
harmful for the future of the country.“9 His crusade had
been blunted by those who harked to a different political
religion, but he promised to return and fight for the prin-
ciples he believed in.

As to whether Mellon was proposing an income tax plan
favorable to the rich, let us examine the comparative
figures. The accompanying chart shows the 1923 tax schedule,
the Mellon Plan, the attempted compromise by Longworth, and
the Garner Plan, the last of which for practical purposes
was adopted. Garner claimed that his program would benefit
6.6 million more taxpayers than Mellon's; whereas the latter
would favor 12,000 more than the former, all of which were
at the top of the list. Said Garner: ”They (the Mellon
Supporters) believe that the burden of taxation should be
Shifted from where it is now, on those best able to pay, to
those whose necessities compel that they pay."30 To the
Press, he made even stronger statements.

It is clear that Mr. Mellon's design is to

reduce his own and the taxes of other wealthy

people, and at the same time decline to give

the small taxpayer the same consideration he

gives himself. . . . There is no doubt that
Mr. Mellon thoroughly thought out his plan,

‘ “h-

29
P‘ .r'.Mellon to Coolidge, May 30, 1921;, File 21, Coolidge

3“U.S., Coggxéessional Record, 68th Congress, 1st
39881011, LIV, ‘1‘ 9 g e

1128

 

 

 

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129
which has for its sole purpose the reduction
or the larger tsgpayers at the expense or the
small taxpayers.
Though it cannot be denied that Garner was giving more to
the lower brackets, to assume that Mellon was shifting the
burden is to draw an erroneous conclusion.

No one was proposing a shift or the burden. Each of
the plans recommended reductions in all brackets. Nor
should one be misled by Garner's rhetoric about 6.6 million
taxpayers and "those whose necessities compel that they
pay" and conclude that he was talking about help for the
little ”11.32 Only 3.5 million paid taxes, the other 3
million plus Just riled returns. The small income group,
the under $5000, it should be recalled was paying little
or no taxes already and that lower brackets were middle
class people with incomes in the area of $5000 to $25,000
per year, and this was the group that Garner was helping
more in a proportional sense. Confused by the polemics,
contemporary accounts tended to equate those with small
incomes with those in the lower brackets. The Texas Demo-
crat recommended a larger out than Mellon for all people
earning $55,000 per year and less, and a man with a $50,000

annual income could easily be a millionaire. The Secretary,

 

3:I'New York Times, February 211, 19211--

32The next time that Garner extensively expressed him-
self on economic matters was 1932 when he came out strongly
for a sales tax and harangued the Congress over the need
for a balanced budget ; two items that Mellon was pushing.
Either Garner had changed for unknown reasons or he was
revealing his true feelings.

 

130
while proposing material relief for all taxable incomes,
preferred to give proportionately more to upper brackets
on the assumption that they would invest the savings in
productive enterprises, thus benefitting lower income, non-
taxpaying types with increased employment and higher wages.
Undercurrent in his argument was that the middle class would
increase personal consumption rather than embark on capital
investments, something that Mellon did not believe equally
beneficial to the economy.

When the coalition increased estate taxes and added a
gift tax, the Secretary became convinced that their goal
was to destroy wealth by taxation, no write a bill based
upon ability to pay.33 Efforts to lop more people off the
tax roles was equally destructive. He believed that paying
taxes, no matter how small, would make the public more
watchful of government spending and gave citizens a stake
in their government. Also, too much dependence for federal
revenues would be placed upon a small group of peeple. In
the event of a recession, new tax provisions would have to
be written, illustrating that the coalition's bill was
simply reduction for the present and not a permanent reform.
The situation after the crash in 1929 bore out Mellon's
fears.

Another aspect in examining the 19214. tax fight is the

problem of income distribution. There is no question that

 

33ueiion, Taxation, p. 119.

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131

in the 19208 that income was poorly distributed.3h To
decry the Mellon Plan for failing to promote redistribu-
tion, however, is to look at the wrong end or the problem.
What was needed was to raise the incomes of the non-
taxpaying public. This could be accomplished by high taxes
on the upper classes it accompanied by an intelligent gov-
ernment spending program. Or it could be attained by lower
taxes on high incomes, on the assumption that they would
invest and that a boom economy would result. The Mellon
Plan was a spin off from.the second alternative, improve-
.ment of the lower incomes with.a concommittent increase or
a maintenance or the status quo for the upper incomes.
The Secretary's ideas were predicated on the benevolence or
self-interest of the employer, something that was not always
true, but one can at least credit the Secretary with oper-
ating within a framework that was theoretically feasible.
JHis opposition did not even have a frame; they simply pressed
for tax reduction on the lower brackets on general prin-
ciple. There were no points presented that reducing taxes
in the lower brackets would stimulate consumption, promote
economic growth, and consequently improve income distribu-
tion.

In evaluating the Mellon Plan, one must take into con-
sideration the goals and possibilities of taxation. To

 

3“National Industrial Conference Board, Studies in
Enter rise and Social Pro ress (New York: Na‘t'I. Indus.
on e e, y p. e

132
expect more of it than was possible, i.e., income redis-

tribution, is not fair. Massive government spending ac-

companied by high taxes on the wealthy would promote re-
diatribution, but the experience of the last thirty-five
years tends to disprove that combination as well. Also, to
criticise Mellon and accept Garner without examining the
Statistics is to surrender to ideological persuasion and

rhetoric. Then as now, the middle incomes bore the brunt

01" taxation. If the goals of the program were to keep taxes

low and to spread the burden according to ability to pay,

the Mellon Plan approaches those ends. To suggest as Garner

did a shift in the burden from the middle to upper income

is to miss those goals. It is not to engage in progressive

taxation but to participate in a form of class warfare.35
While the Revenue Act of 1921; was bouncing through
Congress, another facet of the Mellon Plan, the constitu-

tional amendmentto prevent the further issuance of tax-

oxempt securities, was dealt with. Chairman Green had

become a passionate supporter of the plan to tax incomes
from state and municipal bonds and his Hays and Means Com-
mittee voted favorably on it as soon as it finished with
the tax bill. Though it had passed the House once before,

‘_

35Just what motivated the anti-Mellon forces is hard
to establish. In his study of the Democratic Party in the
1920s, The Politics of Provincialism (New York: Alfred A.
Knopf, 1933’, David Burner pointed out that the coalition
was only joined on the questions of taxes and the tariff.
When it came to other'progressive" (quotes mine) pieces
or legislation, the Democrats split and usually voted ac-
cording to sectional biases, pp. 168-69.

133
'tlxe altered.composition of that body spelled defeat and
the measure fell seven votes short of the necessary two-
thirds.

When the 69th Congress in 1926 reduced the maximum
surtax to 20% and thus negated his point that an amendment
it‘s necessary to equalize the potential return of tax-
Oxempt securities and private investments, the Secretary
discontinued his request for it. He was still sympathetic
to the idea for other reasons such as ending the federal
nubsidy tax-exempt securities provided the states, but
there was no point in demanding something that neither
(Jongress nor the states would accept. In 1927, he changed
tactics and asked for complete tax-exemption of federal
leonds, arguing that they were at a disadvantage in the
market because of non-tax features of their competition.
IIf Congress would not tax municipals, it was illogical and
unfair to tax national securities.36 To discontinue the
requirement that federal bonds holders must pay surtaxes
on their dividends would cause a reduction in the interest
:rate and provide savings to the government in the form of
lower carrying charges on the domestic debt. Since he
could not increase revenues by taxing state and local gov-
ernmmnt bonds, Mellon wanted to cut costs by applying the
tax-exempt status on federal securities.

Defeated on two fronts, the Secretary succumbed at a

3§énnual Report, 1927, pp. 6h-67. Federal securities
already were exempt of normal taxes, but not surtaxes.

13h

third. By overwhelming majorities in both Houses, Congress

passed a veteran's bonus. Coolidge, Mellon, and Senator

David Reed tried to gather the votes to sustain the veto

in the Senate, but they failed. Dire predictions had come

from the Treasury in the event of a bonus without tax re-

lief; together they seemed to mean economic calamity. But

the impending catastrophe never came. Instead, government

revenues increased, the bonus was paid, taxes were out

further, and surpluses still resulted. Obviously the Trea-

aury had grossly erred in its estimates.37

There were three reasons for the mistakes. The first
was the crude method of compiling statistics. A statisti-
cal section began only in 1921 and the lack of experience,

combined with the skimpy data available, led to numerous

.rrors. Secondly, the ever accelerating growth of the

oconomy made it awkward to estimate a year or more in ad-

vance. Like most observers, the Treasury was accustomed to

a fluctuating cycle and did not anticipate either the almost
continuous growth from 1921 to 1929 or the high rate of

growth that took place. The third factor, adjustment of

figures, had clandestine overtones. When charged with

manipulating statistics for political reasons, Mellon in-

directly admitted to occasionally making changes on the

advice of his subordinates. With both the Treasury Actuary

and the Commissioner of Internal Revenue compiling estimates,

k

37New York Times, May 11, 19214; 11.6. Hendricks, The
Federal 15.55 1913-19 0 (Washington, D.C.: MemeoformT'i-‘ess,
15537, pp. I - as an examination of the errors in es-
timates throughout the decade.

135

he sometimes chose the one more favorable to his point of

1r:l.ew.38 Desiring to keep government expenses at a minimum,

the Secretary was want to present the highest possible
figures for appropriations he did not like and there were
few extraordinary appropriations in the 1920s with which he
films sympathetic. Admitting, however, that Treasury figures
had been altered cast a shadow on his general credibility
and led to repeated charges of manipulation everytime his
financial projections missed their mark.39 It was an un-

lmecessary use of scare tactics that invariably caused prob-

lems .

While Congress was debating the Mellon Plan and related
economic issues, it was also engaged in a series of enter-
prises that deducted from its deliberations on matters in

which the Treasury had a vested interest. The 68th Congress

was mired in a number of investigations: the Veterans

Bureau, the Alien Custodian Office, the Navy, Interior, and

Justice Departments and lesser inquiries. Several major

pieces of legislation such as the National Origins Act re-

quired extensive consideration. Since it was a presiden-

tial election year, time was of the essence and most Repub-
licans hoped for an adjournment before the convention opened

June 11 in Cleveland. As it turned out, the Senate ended

‘i

381bid., March 21-25, 192a.

”Annual 30 0PM 1927. pp. 25-6 has a defense of the
Treasury's failure to accurately predict taxes and revenues.

136
session with only four days to spare.

Andrew W. Mellon's position in history has for the
most part hinged on the Mellon Plan and its ideological
foundation, yet the Congress that considered it was one of
the busiest and most politically motivated in history. His

day in court was from being under the most favorable cir-

cumstances. On the other hand, had the legislature spent

more time, particularly the Senate, the Mellon Plan may
have been emasculated more than it was for the pro-Mellon

Conference Committee, meeting under pressured circumstances,

deleted several hostile amendments.

One of the lesser inquiries begun in 192).; that was

destined to cause years of discomfort was the Senate inves-

tigation of the Internal Revenue Bureau. The probe was

directly related to the Mellon Plan, having its roots in
an exchange of vitriolic letters between the Secretary and

Senator James Cousens (R-Mich.), and for a time threatened
to destroy it.

Senator Cousens initiated the exchange shortly before
Christmas, 1923 when he questioned the Secretary's argu-
ments about the relationship between high surtaxes and tax-
exempt securities.ho Looking at the Treasury figures of
1916 to 1921, he claimed that they did not give a true

picture and that Congress should wait for statistics from

W

hoCousens to Mellon, December 20, 1923, Tax--Cousens

Correspondence, 192h-29 file, 91331.1 Correspondence,
Box 11:9.

137
1922 and perhaps 1923 before acting. His contention was
that the later years, ones that were not economically de-
pressed as 1920 and 1921 and were ones in which a reduced
surtax applied, might tell a different story. As for the
securities themselves, the Senator said that he looked
about and saw no shortage of capital for private investment.
In IL second letter, the former partner of Henry Ford ex-
tended his argument into a personal vein. ”Do you contend
thfit it is less productive to invest money in thousands of
I"alcolhouses, to invest money in waterworks, lighting
Pl‘nts . . . than it is theaters, office buildings. . . .‘hl
ThOugh Mellon had well versed economists on his side, the
' 'hllple logic of Consens was attractive to the public.

The Secretary was overly sensitive to the criticism,
and lashed out unnecessarily. When the Senator revealed
that most of his fortune was in tax-exempt securities,
Mellon transformed the dispute into a brawl, implying that
Consens was a tax dodger, just the type of person that his
Proposed legislation was designed to stop. Responding to
the charge, the Michigan Republican pointed out that his
investments had been made to avoid a conflict of interest,
something Mellon could not say. Mellon retorted that the
Senator had made his investments before entering public
life. The brawling went on publicly for two months, becoming

more heated and personal with each exchange.

——7

uCousens to Mellon, January 11, 1921;, Ibid.

138

The issue came to a head in late February with a
polite letter from Couzens asking if the Treasury would ob-
ject to an investigation of the Internal Revenue Bureau.
Claiming that he had heard reports of irregularities, the
Senator said he simply wanted to check them out. Mellon
ude it clear that he believed an investigation to be un-
necessary and potentially disruptive to the bureau's oper-
ation, but he could not object if he had nothing to hide.’42

The committee got underway almost immediately under
the direction of Senator James E. Watson (R-Ind.), a staunch
“lininistration man. President Pro Tem Cummins helped the
Tr‘eesury by appointing several members who were also on
the Finance Comittee which was presently occupied with
the- Melloh Plan. Cousens disliked the tactics but by vot-
1113 with the Democrats he could assure himself of being on
the majority.

Testimony before the committee seemed to indicate that
companies in which the Secretary had an interest and those
omed by benefactors of the Republican Party were being
given preferential treatment in the form of large refunds.
hphasis was placed on a rebate to the Gulf Oil Corporation,
a company almost wholly owned by the Mellon family. The
Secretary denied any wrongdoing and Commissioner Blair

proved that the Gulf Oil case had been adjudicated under

—————

thll of the letters are in the Couzen's file of the
Official Corres ondence, Box 1149, and most of them were
printed In the newspapers. The feud was a very public
thing.

139

the Wilson administration, and that he had simply executed
payment. The Treasury countered that the committee was
making much ado about nothing since tax collections from
1917 to 1923 had amounted to $26 billion and that only
$262 million, about 1%, had been refunded. Besides that,
additional assessments ran eight times more than refunds.'43
”10 government was the victor more often than the victim.

Though its findings were spotty, the committee con-
tinued hearings. When it voted to hire Frances J. Heney
91’ San Francisco as a special investigator to be paid by
Consens personally, Chairman Watson futilely attempted to
h‘ve it discharged. Informed of the unusual circumstances
91‘ Honey's retainer, Mellon cried foul and appealed to the
Pl‘Ibsident. Coolidge immediately dashed off a letter to the

Senate, castigating, it for allowing such an extra-legal
operauonfih The New York Times called the message "one
01' the most sensational utterances that have come from a

President of the United States in years.“5

The President's support for his Secretary and the
Internal Revenue Bureau was really a defense of the entire
executive establishment. Senate investigations had forced

three Cabinet resignations, and Senator Kenneth McKellar

W

(”New York Times, March 23 , 1921,.
thbid., April 12, 192i.
h5Ibid.

1140
(D-Tenn.) thought Mellon a suitable fourth.“6 Bashing back
at Coolidge for unwarranted interference with legislative
perrogatives, the Senate voted funds to hire an investiga-
tor other than Heney. Garter Glass (D-Va.), one of the
1'0" members of the opposition who generally supported
Mellon, was particularly vocal in the defense of the Senate
establishment.“

With its driving force hospitalized for intestinal
'ul‘gery, the comittee recessed in mid-April. In the in-
ter-21m, T.S. Adams, chief economist for the comittee and
longtime Treasury advisor, resigned and Senator Watson
71:: ated the chair in favor of Senator Cousens. Both men
"16 that no good would come from the hearings and in their
own way sought to avoid responsibility for the outcome.“8

Reconvening in September, the hearings dragged on into
1925. By March, Mellon had reached his saturation point
md, in a letter written in the Secretary's office, Coulis-
Iioner Blair notified Senator Couzens that they were re-
OPOning his 1919 taxes.“9 The Bureau requested that he
lien a waiver and when he refused, the statute of limita-

tion would expire in a few days, assessed him nearly

A A
——

héU.S., Go essional Record, 68th Congress, 1st
Session, LIV, Part 6s I525: 31KB.
h71bid., 6358-62.

“all“: York __Tinese April 1‘4 and July 26, 192,4-

14-"Blair to Couzens, March 8, 1925, Cousens file,
Official Correspondence, Box m9.

lhl
$11 million in back taxes. Two could play the game as
easily as one.

Both.the Cousens' Committee and the Senator's tax case
came to the same endp-nothing. Not only did the Treasury
fail to prove any improprieties in his 1919 return, the
Board of Tax Appeals determined that he had overpaid his
taxes by some $900,000. is for the cmnmittee, accusations
were made but nothing was proven. Unlike many of the comp
panion investigations, no crhlinal or civil proceedings were
initiated. Some questionable practices were revealed, but
like the results of so many Congressional investigations,
no legislation was enacted to alter the irregularities. To
condemn Mellon for favoritism on the basis of the Couzens
Committee findings would be to declare a man guilty because
he was charged. Given the animosity between them, we can
be certain that Cousens would.have insisted on prosecuting
had he been able to prove his case. Regardless of the in!
nediate outcome, Mellon had developed a formidable enemy
who would.harass him until death cut short his promising
career.

l92h did.have one happy note for Mellon. At the
lackluster Republican convention in Cleveland, the appear-
ance of the Chairman of the Pennsylvania delegation was the
high point. In what was probably a put-up operation, he
was called to the podium.to make a routine notion for
creation of the Resolutions Committee. A sparse crowd re-

sponded enthusiastically to his presence and staged the

1142
only spontaneous demonstration of the convention.50 At a
time when peOple were starting to refer to him as ”the
greatest Secretary of the Treasury since Alexander Hamilton,"
the crowd hailed the Pittsburgh banker as the personifica-
tion of their party. The Republican hierarchy showed its
appreciation by writing a platform under the direction of
Ogden Mills whose economic planks were tailored to the
Mellon philosophy.

After the convention, the Secretary embarked on his
annual European tour, leaving the campaign to those more
interested in party politics. It was a rather issueless
campaign and would not require his attention. His public
involvement was limited to a short radio address in late
October extolling the virtues of the Grand Old Party. That
radio address did, however, establish a precedent for the
Secretary as he would bi-annually take to the air waves in
support of his party.

Struggling throughout the summer for something to
challenge the Republicans, the Democrats found a viable
issue in the waning weeks of the campaign. The Senate,
while out of session, released a report compiled by the
Federal Trade Commission, charging the Aluminum Company of
America of unfair trade practices. It included testimony
by Alcoa's chief executive officer to the effect that the

corporation ”really consist(ed) of AM. Mellon and

h

SONew York Times, Jun 11, 1921;.

1'43
R.B. Mellon.” ”Apparently engaged in various practices

forbidden by Judicial decree under the Sherman Act,“ Alcoa,
the report went on to say, "has a practically complete
monopoly of the aluminum in the United States and is the
only domestic source of supply of the metal for aluminum
cooking utensil manufacturing. This fact, combined with
the high protective tariff on aluminum, enables it to con-
trol the price of aluminum.”51 Though Secretary Mellon
rebutted the charges, the Democrats coupled the Trade Comp
mission points with the Couzens report to make it appear
that he was as corrupt as his former colleagues Daugherty,
Fall, and Denby. In the few remaining weeks of the cam»
paign, Mellon and his business interests were the focus of

‘ttack e

The President stood by his Secretary as he had always
done, denying the charges with equal vigor. The electorate
responded to the Coolidge-Mellon campaign of prosperity,
returning the President to the White House with a decisive
majority in a field of three. More concerned with defeat
than the final figures might indicate, Mellon and.his
fellow Republicans worked to raise a war chest. To insure
victory in doubtful states,‘W.L. Mellon cooperated with
Joseph Grundy, President of the Pennsylvania Manufacturers

Association, in raising $650,000.52 The Secretary and his

51Ibid., October 6, l92h.
521bid., October 29, l92h.

11m
brother made handsome contributions to the fund.53

The campaign over and the lame duck Congress meeting
in a short session, the Secretary devoted his attention to
day to day Operations at the Treasury. In her Babbitts
and Bohemians, Elisabeth Stevenson has described 1925 as
”The Year Nothing Happened,” and in Mellon's case, this
was a reasonably accurate statement. It was an anti-
climatic period after the hectic pace of 19214,. Re toyed
with the idea of requesting further tax reform, but the
elections indicated that it would be best to wait for the
next Congress.

Two matters of some import occurred in 1925. One was
the attempted refunding of all outstanding foreign debts and
the other was the reorganization of the Prohibition Bureau.
The impending expiration of the Debt Commission made the
former particularly urgent.

After visiting Europe in the smmner of 192b,, Mellon
concluded that the economic climate indicated that it was
too soon- for debt settlement. He was, however, pleased
with the early stages of the Dawes Plan, satisfied that it
would reconstruct EurOpe. The appointment of his former
Under-Secretary, Parker Gilbert, as Agent-General for Repar-
ations under the Dawes Plan increased his confidence. Upon

his return to Washington in September, he encouraged bankers

__‘

53Ferdinand Lundberg, America's Sixt Families (New
York: Vanguard Press, 1937 9 DP. 1- 2.

1&5
to resume serious investing in EurOpe.Sh PCPPIY ‘0 ODGOUP-

age debt settlement, the administration.had been ”discour-
aging” private economic involvement since May, 1921.55

The door was opened to the circular program of American
loans to Germany, German reparations to the Allies, and debt
payments of the United States.

By mid-1925, the economic situation on the Continent
showed.somm improvement and washington called for funding of
the remaining $7 billion. The Debt Commission also was
prodded by Senator William Borah (R-Idaho), Chairman of the
Foreign Relations Committee, who expressed fear that the
debtors were procrastinating in the hope of reduction or

cancellation.56 An old Irreconcilable whose attitude had

not changed, the Senator was demanding prompt and full
payment, a position supported by a great many on Capitol
Hill.

Coincident with the American request for settlement
was Great Britain's return to the gold standard. To Mellon,
the gold standard and the balanced budget were gods of equal
magnitude.57 As an assist to British.rcstoration, the

 

ShNew‘Y’ork Times, September 5, 192h.

SSBengamin B. Williams, Economic Forei 'n Polio of the
United Sta es (New York: McGraw HIII, I929fi, p. 87.

S6New‘Y’ork Times, May 17, 1925.

 

57See congratulatory telegram, December 29, 1927, from
Mellon to Finance Minister Count Volpe on the return of
Italy to the gold standard. Secretary Andrew W. Mellon

file, Official Correspondence, Box 213. In the telegram,

1&6
Secretary worked closely with Benjamin Strong, Governor of
the Neerork Federal Reserve Bank, in maintaining a low
discount rate and in providing a $300 million loan dhould
circumstances dictate it.58 To a degree, the Federal Re-
serve system was being prostituted for international
reasons as the American discount rate was kept lower than
that of the Bank of England to prevent a gold drain from
Great Britain to the United States. Should.the American
rate be higher than its British counterpart, English in-
vestors would.ship their gold to a.more profitable Wall
Street. On the other hand, the international aspect fit
well with Hellon's previously stated low rate policy for
purposes of general economic stimulation and ease of float-
ing Treasury securities. When the crash came in 1929,.many
critics looked to the maneuver by Mellon and Strong, view-
ing it as crucial in the chain of events. while they were
holding the discount rate down for international reasons,
they should.haye increased it for domestic purposes.

The first delegation to appear in'Washington was the
Belgian. In his opening address, the Chairman of the
American Commission set the tone for the meetings. thing
that capacity to pay would be an intricate part of the
funding formula, Mellon also gave an expression of his

personal feelings. ”Funding,” he said, "is a recognition

 

57(cont.) the Secretary referred to gold as the key
to international trade and a help to the stabilization of
Italian Industry.

531m: York Times, April 28, 1925.

1h?

of the integrity of international obligations.” In fact
that recognition was more important than the sum involved,
a hint that he was ready to bargain.59 The Pittsburgh
banker, not an obedient servant of Congress, was talking.

A rather quick settlement was reached.with.Belgium at
terms more favorable than those given.the British. France
took that as a one that American resolve was weakening and
dispatched Finance Minister Caillaux to‘Washington. The
offer was to pay $h billion over a sixty-two year period,
but the Commission was holding out for $10 billion. In a
private meeting with Mellon and Under-Secretary Garrad
Hinston, Caillaux suggested a compromise of $6.2 billion,
a figure acceptable to the Chairman and some of the com-
mittee.6° Senator Borah, however, intimated.that his com-
mittee would reject the compromise, and a modus vivendi
'with the French simply paying interest for five years was
proposed by'Hellon.61 The Painleve Cabinet rejected.the
temporary expedient and 1925 closed with the French debt
in limbo.

To help make France see the error of its ways, the
administration selectively reinstated its policy of dis-

couraging European loans. Since it was ”contrary to the

 

59Ibid., August 11, 1925.

6°Ibid., September 27, 1925 and Charles 3. Hamlin.MSS,
Index-Digest, Manuscript Division, Library of Congress,

0 . , p. 13h.
61New York Times, October 1, 1925.

lhB
public interests of the United States to permit foreign
governments which.refused to adjust or made a.reasonable
effort to adjust their debts to the United States to
finance their requirements in this country," Mellon re-
ported that ”bankers consulting the State Department were
informed that the government objected to such financing."62
President Coolidge invited Charles E. Mitchell of the
National City Bank of New‘York to discuss the matter.
Their meeting ended with an agreement that bankers would
voluntarily withhold loans to nations that had not adhered
to the government's wishes.63 Since that meant only France,
a poor credit risk anyway, it was a good public relations
move by the bankers who stood to loose little by scepera-
ting with washington. The ban remained in effect until the
end of 1927 with.respect of loans to individuals, and until
July, 1929, the date of French ratification of the Mellon-
Berenger accord, with reference to borrowing by the gov-
ernment.

Though France left dissatisfied, Latvia, Czechoslo-
vakia, Estonia, Rumania, and Italy came to terms. Eadh
settlement was more favorable than that given Great
Britain, the supposed standard. Under Mellon's direction,
the commission was trying to be as realistic as possible
without raising the wrath of Congress. Senator Borah was

 

62Annual Report, 1925, p. 5h.
63flew York Times, October 22, 1925.

M9
kept fully informed as to the progress of the negotiations
and invited to all social functions with the foreign dele-
gations. The Chairman was walking a dangerously thin line.

1925 also witnessed a reorganization of the Prohibi-
tion Unit. Though prohibition enforcement had not become
a volatile campign issue, Mellon's critics continued casti-
gating him as a ”whisky dealer” because of his former re-
lationship with Overholt Distillery Company and their be-
lief that he was not doing his job as well as he could.

The new year saw no cessation and to quiet the 'drys' he
brought in a career army officer as Assistant-Secretary,
Lincoln C. Andrews, and put him.in charge of enforcement.
Andrews' first assignment would be to direct the reor-
ganization.

In Mellon's list of methods for improving enforcement,
reorganisation was his third and last choice. His first
choice had always been to transfer the unit to the Justice
Department and wash his hands of the whole matter. Too
many peeple, especially Wayne Wheeler and the Anti-Saloon
League, objected to that solution to make it practical.
When Representative Louis Cramton (R-Mich.), Andrew
Volstead's heir in the House, proposed an option of making
the Prohibition Unit an independent agency within the
Treasury Department similar to the Internal Revenue Bureau,

he jumped at the opportunity.6u Though he opposed the

6hMellon to Reed Smoot, June 30, l92h, Reorganization
of Department file, Official Correspondence, Box 213, and

150
created of more independent agencies under the President,
he saw no problem.if they were under a Cabinet member's
control.65 The Cramton Bill passed the House, but died
in the Senate.

The death of the Cramton proposal forced Mellon into
accepting the third alternative, reorganisation. In late
June, 1925, the Treasury announced a restructuring of en-
forcement policy.66 There would be twenty-two administra-
tive districts identical to the federal judicial circuits
instead of the 01d state by state operation. The direc-
tors would report to Andrews; and Commissioner Haynes'
duties were to be ”less administrative and more advisory.”
There had been a growing fear in prohibitionist circles
that Haynes would be forced out because of disagreements
with.his superiors, but the Secretary did not dare fire the
only man in whom his critics had faith. This particular
form.of reorganization was as close to the independent
Prohibition Unit as the Secretary could create by executive
order.

Inherent in the reorganization plan was an attempt at
decentralization.67 Too much.responsibility for enforce-

ment had fallen on the federal government; the states must

6h(cont.) Andrew w. Mellon, ”Prohibition is Up to
You,” Colliers, June 30, 1926, pp. 7-8.

65Mellon to Coolidge, June 30, 192k, File 21,
Coolidge Papers.

66Rew York Tunes, June 2h, 1925.
67Annusl Report. 1926, pp. 139-ho.

151
shoulder their share of the burden. The Secretary argued
that the principle duty of the federal government should
be to point out areas needing more work and effort, not
assmme the whole task.

Assistant Secretary Andrews took six months to effect
the reorganization. The process assumed a military aura
as he appointed several former officers to subordinate
positions and instituted the army policy of rotating per-
sonnel from field to staff. In a public proclamation at
the close of 1925, Andrews promised to establish an ef-
ficient enforcement program.or leave. Declaring that ”I
was never a prohibitionist,” the Assistant Secretary
claimed that he had seen the error of his ways and promised
success.68

While prohibition enforcement was being revamped, the
I'drys'.’ lessened their attacks. For the first tflme since
assuming office, the Secretary was doing more than going
through the motions and the flurry of activity seemed
sufficient to keep the critics happy. A.moratorium like
that of 1921-22 was reinstituted. Mellon had admitted.that
enforcement had not reached the desirable level and, as a
public servant, he was being responsive to the demands of
his constituency.

The remaining free time in 1925 was spent in prepara-

tion for the bi-annual assault on taxes. Remembering the

——_¥‘

681bid., December 29, 1925.

152
debacle of 192h, there would be no Mellon Plan as such.
Indications were that the new Congress would be more amen-
able to his ideas, but rather than risk his reputation, the
Secretary decided that he would respond, not initiate. He
would fulfill his duty of making suggestions, but he would
not insist.

To assure that Congress would indeed be more receptive
than previous, he broke his tradition of silence and made
two major speeches in the South, one in Richmond, Virginia
and.the other in Jackson, Mississippi. The goal was to
destroy the coalition by appealing for southern support and
the warm.reception he received showed that his tactic might
work. The southern bankers and businessmen he addressed
responded enthusiastically to his reiteration of the general
principles underlying his ideas on taxation.

When Green, Smoot, and others talked tax reduction,
Mellon quietly encouraged them. Victory was finally in
sight and he would make no flamboyant gestures that might
jeopardize the favorable conditions. The watchword was.

caution; there would be no siege.

CHAPTER V
ZENITH

Andrew W. Mellon's tenure as Secretary of Treasury
fell one moth short of eleven years, a record of continu-
ous service challenged only by his fellow Pennsylvanian,
Albert Gallatin.1 The climax of his long career, however,
came near the mid-point in the 1926-27 period. As the
Coolidge years drew to a close, the Secretary achieved his
three major goals-oscientific tax reform, funding of the
foreign debt, and progressive reduction of the domestic
debt-~and had made significant strides toward reaching a
series of lesser ones. Barring unforeseen calamity he
could expect to spend his remaining days protecting and
consolidating his gains, and perhaps retire with.Coolidge at
the pinnacle of their popularity. His capable Under-
Secretaries, first Garrad Winston and later Ogden Mills,
would keep watch on the day to day financial Operations of
the government, allowing the Secretary to take a more

leisurely approach to life and to travel more frequently.

 

1Albert Gallatin technically served longer, but he
was out of the country negotiating the Treaty Ghent for
almosta year and his seat was declared vacant in the in-

terha. IMellcn also was the only Secretary of Treasury to
serve under three Presidents.

153

15h

There is something incongruous in the fact that he was
able to reach his principle goals in a matter of months
after failing to obtain them.in five years. On some issues
his opposition collapsed, ahaost evaporated, while on
others it succumbed only after a prolonged fight. An ex-
amination of his victories will reveal some crucial in-
sights into Mellon's Treasury career and the politics of
the 1920s.

The Secretary's first victory of the period and the
most important one of his ministry was the Revenue Act of
1926. After two frustrating attempts, the Congress, with
strong Republican.majorities swept in.on the coattails of
Coolidge-Mellon prosperity in 192h, finally accepted.most
of his recommendations for ”scientific” tax reform. As
signed by the President in late' February, the bill was a
reasonable facsimile of the Secretary's Movember recommenda-
tions; containing three of his four points and a major part
of the fourth. The LaFollette gift tax and several
nuisance taxes were repealed, the publicity of income tax
returns required by the 192h bill was omitted, and the
maximum combined normal and surtax was lowered to 25%, the
point deemed by Mellon.which would bring in the most
revenue. Although the estate tax survived, its rate was
halved and the portion refunded to the states was dras-
tically increased. All were achieved without a battle,
except the estate levy which.was compromised with.little

155
difficulty.2 For a time it appeared that Mellon's major
problem.would not be in receiving all that he wanted, but
in having the Senate Democrats provide for more reductions
($330:million--$500 million) than he doomed advisable. The
emasculated.Mellon Plan of 192h had become an accomplished
fact, only the name was missing. Why had Congress capitu-
lated with such ease?

For one, the weight of public opinion was once again
on the Secretary's side. The interest of the populace in
taxation, grown lethargic with the:machinations of the 192k
Revenue Act, was reawakened by newspapers and interest
groups. Assorted tax clubs, especially from Iowa and Texas,
and J.A. Arnold and the American Taxpayer's League testi-
fied at committee hearings and maintained a concerted lobby
in support of the Treasury program.3 State representatives
arrived to press for estate tax repeal and twenty-three
governors petitioned Congress for its removal. Unlike the
previous outpouring in favor of Mellon's ideas, this one
was not initiated by the Treasury Department and it must
have been rewarding to see the numbers clamoring for a
hearing. Once planted, the seeds had grown to maturity
with.little care.

2Roy G. and Gladys C. Blakey, The Federal Income Tax
(New Ybrk: Longmans, Green and Co., I9H5), pp. 251-75.

3Ibid., p. 25h and 'Tax Clubs, a New Factor in Tax
Revision,‘ Literar Di est, November 21, 1925, p. 68.
JuA. Arnold was also President of the American Banker's
league, a permanent Washington lobby.

156

A second thing was the absence of a Democratic-
Insurgent coalition, and without that unification, adminis-
tration Republicans could easily control both Houses. The
control of the sympathetic majority was best exhibited in
the fact that they were able to move the bill through the
Congressional maze in less than three months, including a
Christmas recess. For a complicated revenue act, it was
near record time.

As always, the Insurgent Republicans fought Mellon's
prepositions, but they were a near inaudible voice without
the Democrats. With Robert LaFollette dead, the majority
leaders did not invite his followers to the party caucus at
the outset of the session; for practical purposes they were
read out of the party. James Frear (R-Wisc.), their only
member on the House Ways and Means Committee, was denied
his seat and their two men on the Finance Committee,
LaFollette and Medell McCormick (R-Ill.), had passed away.
Lacking committee seats, the Insurgents had to resort to
floor amendments, all of which were easily voted down. The
"Wild Jackasses of the Desert” were not very wild in 1926.

As for the Democrats, not only did they reject their
old colleagues, for practical purposes they formed a co-
alition with the Regular Republicans. House Minority
leader Garner was an early advocate of the 25% surtax and
readily adjusted to Mellon's suggestion of 20% plus the
5% normal tax. The party fell in line, especially on the
estate tax question which they supported from states' rights

157
viewpoint, and only James Reed of Missouri seriously balked
at the turnabout.

The defection of the Democrats has perplexed most ob-
servers. Suggested at the time and still popular today was
the belief that they were disheartened by failure at the
polls on the national level in l92h and capitulated to the
persistence of Mellon for want of a better alternative.h
Others have claimed that the Progressive coalition, and
here one can include the Democrats because of their general
acceptance of the Progressive lead in taxation in 1921 and
l92h, succumbed to Mellon's arguments when faced with con-
tinuing surpluses and lacking a viable pregram.for its
disposal.5

Although these arguments are in part true, they st0p
short of a complete explanation. It is this writer's con-
tention that the Democrats had not really surrendered or
become moribund, but were making a calculated appeal to
the electorate in supporting Mellon on taxation. Inter-

preting the l92h results as a vindication of Mellon-Coolidge

 

h1mm Burner, The Politics of Provincialism (New
Yerk: Alfred A. Knopf, 1968}, pp. IEE-ES and Frank Kent,
“The Democrats Stand by Mellon" Nation, March 17, 1926,
pp. 135-38. It should be noted, however, that Kent also
sees need for favors from the Internal Revenue Bureau by
Congressmen for their constituents as a mitigating cir-
cumstance in the Democratic transformation.

SDavid Shannon, Twentieth Centur America (Chicago:
Rand McNally & Co., 1963’, p. 212; William LEuchtenburg,
Perils of Free erit (Chicago: University of Chicago
Press, 1958’, pp. Mi-B Arthuerink, "What Happened to the
Progressive Movement in the 1920s?", American Historical
Review, LXIV (July, 1959): P. 8&2.

158
prosperity and a rejection of their flirtation with radi-
calism, some Democrats like Senator W.C. Bruce of Maryland
blamed their defeat on coalition politics.6

So as not to be caught on the wrong side again, the
minority party's publications for the off-year campaign of
1926 claimed credit for repeated tax reduction and dimuni-
tion of the domestic debt.7 Using Mellon's arguments for
bi-partisanship against him, they cited the Democratic
origins for the need for surtax reduction and the crea-
tion of the sinking fund. Their efforts were modestly re-
warded with gains in both Houses, but it is difficult to
determine if their growth was the result of their new
tactic or the normal attrition of the majority party in
non-presidential years.

The tact that the Democrats began in late 1925 and
early 1926 became all the more clear in subsequent months.
Continuing surpluses led to a clamor for more tax reduc-
tion. The type proposed was more like what had been sug-
gested for the Revenue Act of 1926 than that of 19211, as
the Democrats spoke of helping the ”middle incomes ," those
in the $20,000 to $75,000 brackets. Asking a cut in the

corporate income tax to help I'small" corporations, they

 

6New York Times, July 13, 1926. David Burner flirts
with these suggestions, but does not really give them the
weight they deserve until after the 1930 elections.
Burner, however, believes the Democratic designs were based
more on a conservative philosophy than on an appeal to the
business community for electoral purposes.

7New York Times, September 13 and October 11;, 1926.

159

echoed the demands of the U.S. Chamber of Commerce.8

The Secretary objected to premature alteration of the
Revenue Act of 1926, citing the need for a fair test before
making permanent adjustments. Reacting to Senator Furnifold
Simmons's (D-N.C.) program of reducing taxes by $560 million
(1926 surplus was $380 million and $180 million was antici-
pated in 1927), Mellon wrote to Senator Royal Copeland
(R-N.!}) that it would be “fatal to the ordinary handling
of Government revenue to base a permanent reduction on one
year's figures,” and that it was mathematically and eco-
nomically impossible to base an annual reduction on two
year's surpluses.9 Somewhat in dismay of the circumstances,
Senator Irving Lenroot observed that the opposition was
trying to "out-Mellon Mellon."lo

This calculated appeal to the upper income, business
oriented segment of American society culminated in the ap-
pointment of John J. Raskob, a General Motor's executive
and a man who in late 1923 had urged his employees and
stockholders to write Congress in support of the Mellon
Plan, as Chairman of the Democratic National Committee for

the 1928 campaign.11 If the Democrats expected to put

31bid., September 12, 1926.
9Ibid., September 1h, 1926.

10Quoted in Burner, Politics of Provincialism, p. 16h.
11Raskob letter, December 12, 1923, Mellon Tax Reduc-

tion Plan File, Official Corres ondence of the Secretar of
the Treasury, Record Group 56, National Archives, Box 171.

160

together a winning combination in 1928, they needed contri-
butions from businessmen and votes from.middle and upper
income people. The Raskob appointment was a continuation
of the policy I'tomake businessmen realise that the Demo-
cratic Party is not bent on taxing them or their enter-
prises exorbitantly."12

The only glimmer of the old Democratic ideas on tax-
ation appeared in a suggestion of a $5000 minimum.income
for paying taxes. In response to a request as to the feas-
ability of such a plan, Mellon wrote Senator'walter Edge
(R-N.J.) that it would be unfair to exempt people with in-
comes under $5000. To be equitable, one should give a
$5000 exemption to everyone, and even at that, he believed
it to be a poor proposition. The Revenue Act of l92h had
sliced the number who filed tax returns (as opposed to
those who paid taxes) from.h% million to Zé-million out of
a total population of 110 million.13 writing to a private
citizen, he also claimed that the agitation for relieving
those with incomes under $5000 was purely political and a
violation of the maxim that tax-paying gave citizens a
stake in society and therefore an interest in how their

government functioned.”4 In the face of administration

 

12Quoted in Burner, Politics of Provincialism, p. 165.

lgéggual Report of the Secretary of the Treasury,
1925. pp. - .

1“Mellon to R.J. Taylor, August 25, 1925, Tax-General
Pile, Official Correspondence, Box 135.

161
Opposition, the preposal quietly died.

When the Republican majority agreed with Mellon and
refused to reopen taxation in late 1926 and 1927, the Demo-
crats accused it of politically motivated procrastination,
of simply waiting until 1928 so as to assist their Presi-
dential candidate. Under-Secretary Winston charged the
Opposition with.harboring shmilar intentions, proposing
impossible reduction on the eve of an election. The Chair-
man of the Democratic Congressional Campaign Committee,
Representative‘William Oldfield (DqArk.) brought the issue
to a head.with the promise that ”if the people elect a
Democratic Congress on Nevember 2, (1926) it will be a
mandate for tax reduction.'15

Hith.the minority party registering slight gains in the
Congress, the Secretary offered a compromise. Though unable
to sanction a permanent reduction, he was amenable to a 15%
credit to be applied to taxes due and payable March 15 and
June 15, 1927. The surplus, once estimated at $180 million,
new loomed in the area of $300 million and Mellon believed
the taxpayers deserved a rebate.16 Neither party responded
‘tc the alternative; the Democrats remained intractible in
their demand for immediate and permanent revision, particu-
larly the corporate income tax, and the Republicans preferred

to sit on the surplus and wait until 1928.

15New York Times, September lb and October 2h, 1926.

9 Ibid., November 10, 1926 and Annual Report, 1926.
p. .

162

This reversal in roles with.the Democrats insisting
on reduction and Mellon resisting is a rather curious de-
velopment. It was made clear earlier why the opposition
wanted taxes on corporations and middle and upper incomes
lowered, but why Mellon would stand in their way requires
some explanation. If the Pittsburgh banker's policy was
shmply designed to help himmelf and his wealthy friends,
logically he should have jumped at the opportunity to reduce
the corporate tax and the surtaxes on the middle income
group, the $20,000 to $75,000 bracket. Instead we have him
balking at such plans and offering a compromise of a credit
that would be indiscriminately applied across the board to
all classes of taxpayers.

Rather than looking at the reversal as a contradiction,
perhaps we should consider it as consistent with his phil-
osophy of scientific tax reform, the lowering of taxes to
the point that would bring the greatest necessary income
while spreading the burden as equitably as possible, two
principles he ascribed to Adam Smith. Realizing that the
fate of the income tax was inextricably connected to the
health.of the economy and that surpluses might only be
temporary phenomena, he argued that premature, permanent
reduction would necessitate increases at some later date
should the economy falter. A surplus during prosperity and
a balanced budget in bad trues would be better than a
balanced budget in good times and a deficit when the economy

turned down. The surplus, however, should be reasonable and

163
if it was to exceed proscribed limits, it should be re-
turned.to the taxpayers in the form of a credit, a more
flexible method of operating than the permanent form which
required Congressional approval. In future years, he would
modify that argument and suggest that the Secretary of the
Treasury be granted power to make small changes in the rate
as revenue needs dictated rather than go through the labor-
ious and costly process of making refunds.

An even more basic item.in understanding his motivation
was expressed by one of his critics. ‘Writing in 1927, Silas
Bent acknowledged that he did not believe Mellon lowered
taxes for his personal benefit. If that was true, if the
Secretary's driving force was the accumulation of money,
then why did he not stay in business and continue to make
money? As Bent argued, Mellon believed in business pros-
perity and wanted to relieve its burden, but this did not
mean that the tax rates on business should be reduced to
the lowest possible level.17

Considerablejvigilance had been necessary 'to restrain
its (Congress) members, who had seen the green light on
last election day from voting a deficit in the Treasury,”
but Mellon had been successful.18 He had received the tax
bill that he wanted, and was able to maintain it in the

’ 17Silas'Bent, Stra e Bedfellows (New York: Horace
Liveright, 1928), p. 7?.

18Harvey O'Connor, Mellon's Millions The Bio ra
of a Fertune (New'York: Blue Ribbon EooEs Inc., 1633;,

p. 0.

 

16h
face of persistent pressure over a two year period. When
the surplus for fiscal 1927, first estimated at $180
million and later at $300 million, reached the record level
of $636 million, the Secretary withdrew his objections to
a new revenue act. Though.persona11y remaining silent,
his spokesman in the Senate, David A. Reed, made it known
that the Republicans would cooperate in the Seventieth Con-
gress (1927029).19 The Grand Old Party was being true to the
Democratic charges, cooperating with Mellon to gain an ad-
vantage in an election year.

Having bested the opposition on taxation, the Secre-
tary of the Treasury gained a second victory over the ques-
tion of funding the Allied.war debt. In the area of inter-
est rates and tTme for payment, the World war Foreign Debt
Commdssion had exceeded its authority and Congressional

approval was necessary for each agreement. The House as-
sented without objection, but Borah, Reed of Missouri, and
Robinson of Arkansas led a spirited fight in the Senate.
They considered the capacity-to-pay formula as a cancella-
tion of part of the debt, a violation of the terms insisted
upon in.the creation of the Commission. Though the formula
meant that the United States would receive double what it
had loaned, the alterations made by the Commission reduced
the possible total, calculated at the original 5% rate, by
slightly more than half. In the case of Italy, for example

19New‘York Times, May 29, 1927.

165
an interest rate of 0.h% instead of 5% meant an actual re-
duction of 80,2% in the amount to be repaid in spite of the
fact that the principal was unchanged.

The ratification of the Italian settlement brought the
clash to its climax. With the opposition rumbling about a
negative vote, Mellon wrote the President that the fate of
all agreements hinged on this vote.20 He predicted a total
collapse of the debt structure should the Senate reject the
most equitable settlement attainable. To demand more than
a country could pay would be foolhardy. As he had said
when negotiating with Caillaux and the French, better to
accept what you can reasonably expect to receive than in-
sist on full payment and run the risk of default.

Agreeing with his Secretary's moderate position,
Coolidge used the good offices of the President to influence
the reluctant Senators, letting it be known that he con-
sidered the foreign debt settlement an integral part of his
economy program: debt payments would relieve the tax burden.
Key Senators were invited to White House conferences where
the chief executive made his point quite clear. Reed of
Pennsylvania and Mellon were also brought in to map strategy
for floor operations.21

When the crucial vote came in late February, 1926, the

 

zoAnnual Re ort, 1926, pp. 21u-16.

alNew York Times, February 26, 1926. See also Mellon's
speech Before the Union League of Philadelphia wherein he
gave the Administration point of view. New Ybrk Times,
March 25, 1926e

166
administration won a surprisingly easy victory. With a
vote of 53-3h, the upper house set the precdent for future
agreements. The losing side included Robert LaFollette,
Jr., George Ferris, James Reed and others, many of whom.con-
tinued their opposition on taxation. The margin of victory,
however, could be attributed to executive pressure and a
number of Southern Democrats who ignored the Klan and voted
yea. Its power waning, the Klan had stood fast on the
questions of full payment of debts as a part of its program
of 100% Americanisme The fact that the Commission was un-
likely to force Italy to accept a more costly funding
settlement in renewed negotiations must have influenced the
Senate too.

With.the Italian ratification in hand, Mellon turned
his attention to the French, meeting secretly with their
new ambassador, Senator Henry Berenger. Assisted by Under-
Secretary Winston who had.made an extensive, first hand
survey of the French economic situation, the Treasury chief
reached an accord with our Continental debtor in April.

The Mellon-Berenger Agreement called for a total of $6.8
billion to be paid over a sixty-two year period. It con-
tained $6h7 million more than Caillaux's last offer, but
some $h00 million of that was for the purchase of post-war
military supplies, something not considered in the previous

negotiations.22 For practical purposes, it was an acceptance

 

22For Mellon's role in the French negotiations, see
W.L. Mellon, Judge Mellon's 8911; (n.p., l9h8), pp. 1453-59.

167

of the earlier offer, something Mellon had advised in
1925.23

Burdened with a very heavy domestic debt, the French
Assembly balked at the terms and did not ratify the agree-
ment until the summer of 1929 when the debt for purchases
of post-war military supplies was about to come due. As
they had in all other debt cases, Congress preferred to
wait for French action before giving its approval. The re-
sult of this tenuous situation was a growing sensitivity
on the part of the Secretary to criticism of this or other
settlements for fear of destroying a year and a half's

work. The French had come to the negotiating table only

when faced with the loan moratorium and the encouragement
of favorable terms as exhibited in the Italian agreement.
Should critics of the foreign debt policy become more
vocal, France might return to its policy of procrastination
in the hope that American domestic discord might lead to
cancellation or additional reductions.

Much to the Secretary's chagrin, opponents of the debt
policy did become more vocal and persistent. Nine months
after the conclusion of the Mellon-Berenger Agreement,

forty-two members of the social science faculty at Columbia

 

23The French negotiations and final settlement has
been reevaluated by Benjamin D. Rhodes, "Reassessing 'Uncle
Shylock': The United States and the French War Debt,“
Journal of American Histor , LN (March, 1969): 787-803.
ME. Rhodes concluded that America was not ”a merciless
creditor" and that France was being obstinate. Some of his

subsidiary conclusions, especially Mellon's role, do not
stand as well.

168
University released a public letter calling for a reopening
of the whole war debt and reparation tangle with an eye
for scaling down, though not cancellation, of all settle-
ments since Versailles.2u The professors attacked American
involvement on two fronts, economic and moral. Economi-
cally, they deemed a capacity-to-pay formula based upon a
sixty-two year projection was unrealistic: morally, they
remanded Americans of the wartime sacrifices in manpower Of
our debtors before the A.E.F. arrived, ending with a plea
for an international conference to discuss the question of
debts and reparations.

The Columbia letter, signed by several economists who
had been vigorously supporting Mellon on domestic questions,
was the culmination of growing sentiment for leniency in
our terms, and placed him in the very awkward predicament
of being criticized by both sides. Neither group would ac-
cept his moderate stance based upon the capacity-tospay
formula, and to each.side he appeared as a defender of the
Opposite propostion.

Fearing a collapse of the pending French settlement,
and not wanting to alienate the more powerful, though tem-
porarily less vocal, full payment group in Congress over
whom.his recent victory would be tentative until French
ratification, Mellon assumed the posture of an unyielding
banker in his response to the revisionists. His attitude

 

2"‘New YOrk Thmes, December 20, 1926.

169
was that he had revised as much as he ever would with.his
capacity to pay formula. Not anticipating full payment,
he did expect the Eruopeans to honor the sanctity of inter-
national obligations to the limit of their capabilities, a
lhmit already determined.

The first hint the Secretary had of the developing
sentiment for revision was a letter from.Fredrick W. Peabody
to President Coolidge in June, 1926, six weeks after the
Mellon-Berenger Agreement.25 Peabody'had urged cancella-
tion on three grounds: that Wilson and the Congress con-
sidered the money a gift and not a loan; that because of
the Allied losses in.human life, we were morally unjusti-
fied in trying to collect; and that we could afford to be

charitable.

At the direction of the President, the Secretary
answered.the letter with a point by point rebuttal.26 He
flatly denied that anyone had construed the loans as gifts,
producing several letters and excerpts from the Congres-
sional Record to substantiate his claims As for the moral
argument, the majority of the sums loaned, except in the
case Of Great Britain, he said, were of a postdwar nature,
and the total sum to be repaid reflected that division.
Charity was not an issue, the banker-Secretary pointed out,

for the loans were not owed to the United States government

 

25International Conciliation, May, 1927, pp. 227-h3.
26Annual Re ort, 1926, pp. 59-73 and 25u-63.

170
but to the Liberty bondholders and taxpayers. The govern-
ment was merely a collection agency, possessing no right Of
cancellation. The letter sounded harsh, but Mellon was
never more earnest in the justice of his case than when he
wrote Peabody.

While the Peabody letter was being drafted, an inter-
view with the Secretary was published wherein he tried to
appeal to both poles.27 To the revisionists and cancella-
tionists he cited Hamilton, arguing that the Officers of
the government are like trustees and ”cannot follow the
suggestions of kindness or humanity toward others to the
prejudice of their constituents.” Since the elected Of-
ficials in the Congress expressed a demand for full payment,
he believed.he was carrying out the wishes of his con-
stituency as far as possible. To the full payment crowd he
said: ”The entire foreign debt Of $10,000,000,000 is not
worth so much in dollars and cents to the.mmerican people
as a prosperous Europe as a customer.” Insisting on more
than Europe could afford ran the danger Of bankrupting the
principal consumers of American exports. Rejection of both
extremes thus was to justify the middle of the road
capacity-to-pay formula.

The SaturdayEveningAPost article and the Peabody.
correspondence, published in his Annual Report for 1926,

were designed to stem the tide of revisionist criticimm.

 

27Andrew‘W. Mellon "Our Best Customer ' Saturday
Evening Post, June 19, 1926, pp. 3-h. ’

171
Unfortunately they acted as sthmuli, especially the
Peabody correspondence which appeared two weeks before the
Columbia letter. Mellon's critics believed themselves to
be as justified in their position as the Secretary, for
all three parties had translated the issue into moral terms
with the economic aspects secondary.

A fellow Commission member, Senator Reed Smoot, helped
Mellon avoid a confrontation by assuming the defense against
the Columbia letter.28 The Chairman of the Senate Finance
Committee had no more success in blunting the revisionists
than did the Secretary, and like his colleague, succeeded
in sthmulating the Opposition, for in March, 1927, 116.
faculty members at Princeton University issued a public
statement in support of the Columbia position.29 This
step forced Mellon closer to the full payment camp as he
felt constrained to silence the revisionists before the
problem.becamm unmanageable. If they made any headway,
they might reawaken his adversaries on Capitol Hill, prompt
our debtors to reopen every settlement, and wreck four
years Of delicate domestic and foreign negotiations.

Writing to President JOhn Greer Hibben Of Princeton
University, Mellon expanded his case against further re-

vision or cancellation.30 In a subtle sort of way typical

 

Zeénnual Repgrt, 1927, pp. 318-20.
29New‘YOrk Timeg, March 11, 1927.

3°Annual Re art, 1927, pp. 326-30 and new YOrk Times,
nmmoh.177‘19277'2"‘ '_‘"__-——__—_—-

172

of his public pronouncements, the Secretary struck at the
professors for commenting with an incomplete knowledge of
the facts and with the French settlement tentative. Mutual
reduction, he said, was unjust because America was only a
creditor while our debtors were creditors as well, and
could well afford all around reduction. They might not
approve of the capacity-to-pay formula, but Chairman of the
Foreign Debt Commission said he knew of none better.

Realizing that repetition Of time-worn arguments would
not dissuade the academic community, Mellon launched into
a new area, connecting debts and reparations, something he
and the Commission had steadfastly avoided. Replying to
the charge that America was imposing ”tremendous burdens
of taxation for the next two generations on friendly coun-
tries,” he said: ”Now, the fact is that all of the prin-
cipal debtors are already receiving from Germany more than
enough to pay their debts to the United States. . . .” The
agreements were not under hardships ”since the sums paid us
will not come from.taxation but will be more than met by
payments exacted from.Germany.” A battery Of figures was
produced tO prove his point. In fiscal 1926-7, for ex-
ample, France would be left with a balance of $75 million
after receiving its credits paying its debts, Belgium a
balance of $16 million, and Great Britain a balance of
$2 million. In each succeeding year, the balances would
increase, and only Germany would be left in the deficit

173

column. He closed with a plea oft heard in the Twenties
with reference to prohibition; give the settlement a ”fair
trial” before making a judgment.31

The Hibben letter drew an immediate storm of protest.
The Princeton President, in a St. Patrick's Day statement,
reminded the Secretary that the World War Foreign Debt
Commission had gone on record in 1925 as opposing any con-
nection between American debts and reparations, they were
to be separate and distinct questions. Had that policy
changed? Using reparations to pay debts, Hibben argued,
destroyed their purpose. They are to rebuild war torn
EurOpe not pay the United States. Besides, the capacity-to-
pay formula was to have been based on the country's internal
capacity, not outside contributions. The New York Times
which had supported Mellon on nearly every economic issue
questioned this about face. Columbia economist E.R.A.
Seligman, a personal friend, indignantly replied that
economists did understand the issues involved and that the
capacity-to-pay formula could not stand the test of economic
understanding.32

This writer questions whether Mellon understood what
he was signing when he penned.his name to the Hibben letter.

 

31Annual Report, 1927, pp. 326-30.

32New YOrk Tbmes, March l8, l9, and 2h, 1927 and
International ConciIIiation, May, 1927, pp. 227-73 has all
of the primary sources Edginning with the Peabody letter.

17h
For years he had maintained a careful distinction between
reparations and debts, and a deliberate connection, in
view of the fact that he later renounced any association,
makes one wonder if perhaps he had approved a document that
he had not read. It was a.mistake reminiscent Of the
Cousens tax fiasco, reacting in the heat of anger instead
of clearly thinking the matter through as he usually did.
The fact that he was about to sail for Europe on a spring
vacation may also have kept him.trom.devoting the attention
that the letter deserved.

Shortly after his return from.two weeks in Europe, a
diplomatic crisis developed as a result of the Hibben letter.
In a formal state paper in the grand Churchillian tradition,
Chancellor of the Exchequer Winston Churchill vociferously
objected to Mellon's claim.that Great Britain would receive
more for its debtors than it would pay its creditors.
Accompanied by an array of statistics, he reminded the
Secretary of the Balfour Declaration of accepting only a
sum.equa1 to debt expenditure.33

Secretary of State Kellogg dismissed the British,
contending that the Hibben letter was purely a domestic
matter. The Treasury chief, however, chose to defend.him-
self, claiming a typographical omission for including Great
Britain among the countries who received more than they

paid. Further examination, on the other hand, revealed

 

33NOw YOrk Times, May 5, 1927.

 

175
that the British deficit in payments was only temporary and
would reverse itself after 1928. The problem, Mellon said,
was not really a typographical error after all, but an ac-
counting distinction in that the British separated credits
paid to their government, the Dominions, and the Bank Of
England whereas the American conception of war debts lumped
these various items into one sum. The Secretary also took
advantage of the exchange to reiterate the difference be-
tween debts and reparations and reassert his position pre-
Hibben letter. ”We have always claimed, and claim now,
that the debts due are in no way connected to German
reparations."3h That last disclaimer made the argument
totally illogical when.the reverse was intended, but then
the general American refusal to see a connection between
debts and reparations was equally illogical.

With the receipt of the Mellon note, the British gov-
ernment decided not to continue the exchange. To allay any
concern the President may have had as to the Treasury's
responsibility in the crisis, Under-Secretary Winston wrote
that the furor was a product of some Briton's wishes to
topple the Baldwin government, and install a cabinet led
by Churchill.35 That may be too strong, but it was evident
that both men were writing, not to insult a foreign govern-

ment, but to state their position in a way most appealing

 

31‘Annual Report, 1927, pp. 331-36.

35GarradWinston to Coolid e, July 2h, 1927, Secre-
tary's File, Official Correspon ence, ox 213.

176
to their critics at home. In Mellon's case, the tactic was
reasonably successful for in spite Of the questionable
logic, he had made clear that the debt settlements were
final, and though he had been inconsistent on the matter
of debts and reparations, the American government would
continue to consider one independent of the other. Unable
to attract public support or alter the Treasury attitude,
the revisionst argument slowly faded away. The Secretary
and.his settlement would be safe until a worldwide depres-
sion struck in 1929 and forced a change in policy.

The third of Mellon's three major goals brought to a
fruitation in this period was the progressive reduction of
the domestic debt. When he took office, the domestic debt
stood at $2h billion and by the end of fiscal 1926 it stood
at $19.6 billion, a reduction of approximately $1 billion
per year. This also meant an annual compounded savings Of
about $h0 million per year in interest payments.36 The
intention was to retire the debt by 19h2, while foreign
debt would run until 1988, thus providing federal revenues
for some forty-six years which could be applied to domes-
tic needs.

The Secretary's economy motivated policy of rapid re-
duction of the domestic debt went unchallenged for five
years. The Democrats under Wilson had rejected the Gallatiin
philosophy of paying most wartime expenses from loans that

 

36Annual Regort, 1926, pp. 38-h6 and Federal Reserve
Bulletin, '1 y, , PP. 500-501.

177

could be serviced by the succeeding generations who had
benefitted from the war, for a policy of heavy taxation
with a minimum.of debt which was to be paid within the life-
time of the youngest wartime generation. The hope was that
the postdwar financial situation would stabilise itself
more quickly with the latter approach, and they had estab-
lished a sinking fund for that purpose.37

When the Democrats changed their position in 1926 on
taxation and endorsed reductions on corporate income taxes
and surtaxes, they also altered their opinion on alumina-
ting the public debt, grumbling that it was being retired
too quickly. Some suggested that the domestic debt he
paid at the same pace as the foreign debt, sixty-two years
instead of the sixteen years planned by the Treasury.
Senator Furnifold Simmons, ranking Democrat on the Finance
Committee and outspoken advocate of tax reduction, proposed
a compromise of thirty-two years which would allow for
most of the debt to be paid by the sinking fund and free
the surpluses for tax reduction.38 In the first five
years Of the Mellon administration, the surplus had pro-
vided as much.for debt reduction as had the sinking fund,
approximately $1.5 billion each, with the remaining $2

billion coming from.foreign debt payments, retirement

 

37Theodore J. Grayson, Leaders and Periods of American
Finance (Lendon: John Wiley and Sons, Inc., 1932 ,

PP 0 EEG-u]. 0
38New YOrk Times, Septemberlz, 1926.

178
through the net balance in the general fund, and other
sources.39 With most government bonds held by small in-
vestors and most taxes paid by men of moderate means, the
Simmons plan assumes an aura not disshmilar to the Demo-
cratic ideas on taxation.

The Secretary was adamantly opposed to any retardation
in his debt retirement programs and used a part of'his
Annual Report for 1926 to show that it was the traditional
policy of the federal government to pay its debt as quickly
as was economically feasible.“0 In other public state-
ments he reminded his critics that it was best to reduce
the debt as much as possible when we could well afford to.
When first explaining his program.to the populace, he said
that to let debts accumulate was ”a sign of debility and
denoted an absence Of the essential vigor and foresight
which insures future success. It is the policy Of the
thriftless, the ne'er doewell.”hl New he was arguing that
most revenues were hinged to income taxes which were sub-
ject to fluctuation, and a recession or depression would
mean that debt payments could only be made with some hard-

ship.ha An accelerated retirement program was Of further

 

39Federal Reserve Bulletin, July, 1926, p. 501.
hoggnual Report, 1925, pp. 2h-26.

hlAndrew W. Mellon, ”What I am Trying to DO,” Worlds
Work, November, 1923, p. 31.

haNew YOrk Times, August 27, 1926 and Andrew W. Mellon,
”Government Finance and Taxation in 1927,” Worlds Work,
January, 1927, pp. 232-33-

179
benefit to the government in that it led to declining in-
terest charges, 23.6% of all federal expenditures in fiscal
1926, and reduced Operating costs. The speed of retirement
and refunding was also tied to the state of the money
market and to limit the amount that could annually be re-
tired or refunded might mean an inability to take maximum
advantage of declining interest rates. In his first six
years, Mellon had been able to reduce the average interest
rate on federal bonds fronnh.29% to 3.97%, a considerable
savings, and the future promised a continued downward
trend.

The 1927 Annual Report included an argument that Trea-
sury debt plans were more beneficial to the bondholders in
that the government had borrowed on a 51 cent dollar and
was repaying with a 66 cent dollar (1913 base year). Post-
ponement ran the risk of inflation and depreciation of’the
dollar as well as increased costs for the government. If
extended to thirty years, it would require an additional
outlay of $3.5 billion, and if continued for sixty-two
years, the total interest would be $h6.2 billion or nearly
double the principal.“3

The best policy. Mellon argued, was an intelligent
combination Of tax and debt reduction, with neither prOposi-
tion receiving more than its just share. As Of 1926, his

general policy had been to apply one years surplus to taxes

1”Annual Report, 1927, p. 7 and Nb" YOrk Times,
October , .

 

180
and the next year to the debt. The President and the Repub-
lican Congress stood behind this policy in 1926 and 1927 and
the Democrats were unable to change it, though they would
continue to point to the ever present surplus as a justifi-
cation for tax reduction. The Republican turnabout on tax-
ation in 1928, primarily motivated by political expediency,
was also grounded in an extraordinary surplus for fiscal
1927, $636 million. They could hold the Democrats at bay
only sO long.

After the Secretary retired, Louis M. Hacker charged
that ”American financiers, including the Secretary of the
Treasury, Mr. Mellon, knew all along that the debts would
never be paid, but deliberately kept alive the fiction that
they would in order to make more palatable Secretary
Mellon's reduction Of income taxes in higher brackets."l*h
Hacker also claimed.that the debt had been insufficiently
lowered in order to provide for tax cuts, thus saddling
the generation of the Thirties with an unnecessary burden.h5
The fact that after 1925 the Democrats led the way in de-
manding tax reduction equal to the surplus and using only
the sinking fund for debt retirement, while the Treasury
was actively seeking to apply surplus revenues to the debt
and delay downward revision of taxes, tends to refute an

accusation which has continued to the present. That the

——._._._

thouis M. Hacker, American Problems of Today (New
York: F.S. Crafts Co., I933}, p. 32.

h51bid., p. 33.

 

181
debt would be fully paid off by 19h2, or at the latest
l9h7, appeared to be a distinct reality before the cataclymm
of 1929.

In the instances of taxation, the foreign debt, and
the domestic debt, Mellon had won victories. That is, the
Secretary had definite policy procedures in each of these
areas and won out in fights with some factions in Congress
and interest groups that saw things differently. 1926-27
also saw him accomplish several other goals that were not
structured in an adversary fashion. One of these was in
the field of prohibition enforcement.

The dry lobby had actively criticised.Mellon for his
enforcement policies until the reorganization of the Pro-
ihibition Bureau by Assistant-Secretary Andrews in the latter
Jhalf of 1925. Reorganisation did not bring an immediate
end to the illegal liquor trade, but the welter of activity
it generated pleased the prohibitionists. The military at-
mosphere that accompanied Andrews and the unyielding atti-
‘tude he expressed convinced even the militants that he was
doing his best.

Attention to prohibition enforcement policies also
diminished when Congress, with an eye for corruption, began
investigating the political activities of the dry lobbies,
particularly Wayne Wheeler and.the Anti-Saloon League. The
increasingly hostile attitude of the legislative branch put
the prohibitionists on the defensive, allowing them little

182
time to watchdog Mellon.“6

Unbeknown to the public at large, the Andrews plan
included the dimmissal of political appointees from the
Haynes administration. Absence of civil service require-
ments had allowed for corruption in the selection of en-
forcement Officers. News of Andrew's shuffling broke when
several dry leaders and Congressmen called for his resigna-
tion for ignoring their recommendations.“7 The Secretary
was placed in the difficult oosition for wishing to retain
a valuable and efficient subordinate while not alienating '
anyone on Capitol Hill or activating his dry critics.
Andrews was informed that he must be aware of political
ramifications and.he Offered to retire, remaining only at
the request of the Secretary who suggested that a detente
might be reached.“8 An uneasy lull hung over the bureau
for a year.

In the spring of 1927, Congress finally passed the
MelloneAndrews, nee Cramton, Reorganization Act. The new
Prohibition Bureau was put under the aegis of Acting-
Commissioner Roy Haynes, the former commissioner under the
old regime who had been shunted aside by Andrews. To be
certain that Haynes did not repeat any of’his old.mistakes,

especially concerning personnel, he was tO clear all policy

A

“6Andrew Sinclair, Prehibition The Era of Excess
(Boston: Little, Brown ind Co., I962), p. 277.

1”New York Times, April 2, 1927.

hBSinclair, PrOhibition, p. 186.

183

decisions with Mellon and/Or Andrews.“9

An integral part of the new bill was the inclusion of
all but the Commissioner on the civil service list. The
Secretary had been quiet about civil service, but Andrews
was an open supporter, further antagonizing the politicians
who wanted to use the bureau as part of the spoils systmm.
Though civil service presented a threat to the spoils
system, Congress failed to adequately fund it and not until
1930 was it an effective part of the Prohibition Bureau.50

In appointing Haynes Acting-Commissioner, it was evi-
dent that Mellon had some doubts about his continuation in
the post.51 When the drys began to pressure him.to make
the appointment permanent, the Secretary staged a brilliant
political and administrative maneuver; he dimmissed both
Haynes and Andrews. The drys were disgruntled over the
loss of Haynes, but they were relieved with the departure
of the uncooperative Andrews. In their places, be pro-
moted chief chemist James Doran to Commissioner and brought
in Seymour Lawman, former lieutenant-governor of New YOrk
and Ogden Mills's running mate in an abortive bid for

u9"POlitica1 wrinkles of the Haynes Come-Back,”
Literary Digest, April 9, 1927, pp.

SOSinclair, PrOhibition, p. 277 and New YOrk Thmes,
April 1 1926 .

SlMellon to Andrews, June 10, 1927, Presidential
Papers Of Calvin Coolidge, Fih 21, Manuscript Division,
brary of Congress and Sinclair, PrOhibition, p. 277.

1811
Albany in 1926, as Assistant Secretary. Both were capable
men and the promotion of Doran was intended as a morale
.boost for the bureau. No change in operation was planned
as both men envisioned adopting the Andrews organizational
structure.

The fact that 1926 did not include a prolonged battle
over taxation or other Treasury related issues enabled
Mellon to turn his attention to the pet project of his ad-
ministration, the development Of the city of Washington.
His first impression Of the Capitol was one of disappoint-
ment. Instead of a city Of beauty like Paris Or Rome,
Washington struck him as an eyesore, cluttered with ”tem-
porary" buildings left from the war. A few months on the
job revealed the situation to be more acute; hundreds of
thousands Of dollars were being wasted annually for rented
space and efficiency was impeded as many departments were
spread all over town in as many as thirty or forty build-

ings.52 What seemed called for was a resurrection of the

L'Enfant Plan and a massive program to beautify Washington
as well as to economize and improve operations.

Public building at this time was entrusted to the
Secretary Of the Treasury, but Congress jealously guarded
how the ”pork barrel” would be divided and the last omnibus
building program was authorized in 1913. As early as 1922,
Mellon, in conjunction with the Postmaster General, had

 

5"’“New York Times, October 18, 1925 and Annual Report,
1925’ pp. " e

185
prodded the legislators as to the need for more buildings
to keep pace with expanding government operations. They
finally agreed to his suggestion for $50 million for de-
velopment of Washington when the Secretary added an addi-
tional $100 million for use throughout the country.53
Though authorizing the entire program, Congress would re-
tain control by appropriating on an annual basis. This
multi-year program formed the core public works campaign
that Hoover used in his attempt to blunt the depression and
absorb unemployment.

The end result of the 1926 construction scheme was the
creation of the Federal Triangle, a section of land that
includes the National Archives, Justice and Commerce De-
partments, the Internal Revenue Bureau, and Federal Trade
Commission. New Supreme Court chambers were also erected.
Assisted by the‘Washington Fine Arts Commission, he kept a
close eye on the Supervising Architect's office to see that
his exacting specifications were met. Nationally knewn
architect Edward H Bennett was employed as a consultant to
oversee the project. In later years as he surveyed his ac-
complishments, Mellon was particularly proud Of his role
in developing the nation's capital. It had become a city,
he thought, that could begin to compare with.its European

counterparts.5h

 

53Annual Report, 1926, pp. 15h-60.

ShInterestingly, except for historians of Washington,
B.C., the only'historian to give Mellon any credit for the

186

The generally successful function of Mellon and his
policies in the mid-decade period went temporarily awry in
the Pennsylvania senatorial campaign of 1926. Four years
earlier he had attempted to exert control of the Grand Old
Party in his home state and was rebuffed by the unwilling-
ness of the Philadelphia faction to cooperate on a ”harmony
ticket” and resulted in the gubernatorial victory of Gifford
Pinchot. Barred by law from running for a second consecu-
tive term, the Republican maverick announced.his candidacy
for senator against the incumbent George W. Pepper, an
administration mmn.whom.the Secretary planned to support.
The primary became an open battleground.when the boss of
Philadelphia, William.S. Vare, declared his intention to
challenge Pepper.

Mellon had reluctantly participated in the political
arena, preferring to deal through his nephew, W.L. Mellon.
The circumstances in this primary, however, called for
personal attention and he summoned'Vare,‘W.L. Mellon, and
other prominent politicians to Washington for purposes of
negotiating a ”harmony ticket” to stop Pinchot.SS With
the election promising to be something of a referendum.on

prohibition, Vare, a wet running against two dries,

 

5h(cont.) development of that city is Elizabeth
Stevenson in her Babbitts and Bohemians (New York: Mac-
millan Co., 1967), p. I32, though she describes his work
as so many 'ponderous buildings.”

SSU.S., Congress, Senate, Hearin s before the Special
in the 3

Committee Investi atin Ex enditures enatorial
5153;: and GenerEI Elections, E§tE Congress, Ist Sass”

,p0 e

187
rejected any suggestion of unity.

Failing to reach.an accord with the eastern wing,
Mellon approached Joseph Grundy, President of the Pennsyl-
vania Manufacturers Association and prominent Republican
fund raiser. A supporter of Pinchot in 1922, he had Joined
forces with the Mellons in l92h to raise a.war chest of
$600,000 for use in areas that might go Democratic.56 Though
he disliked Pepper, he accepted the Mellon's offer to sup-
port his man for governor, John S. Fisher, and a bargain
was struck. In both series of negotiations, Pepper was not
consulted, and.when the "harmony ticket" was agreed upon,
he was presented with an accomplished fact.S7

As could be expected, the Mellon-Grundy faction chose
to fight the primary on.monitary termm and in six weeks
managed to expend nearly $2 million. It was reported.that
over 35,000 poll watchers were hired in western Pennsyl-
vania at a cost of $10 per man, a smn in addition to the
above figure.58 Louis Overaker estimated that the Pepper
forces spent 86 cents per voter in the primary and $2.h2

for each voter who cast a ballot for Pepper.S9

S6A.H. Button, The Penns lvania Jose h R. Grund
(Philadelphia: Dorrance & Co., 1932), pp. 130-33. Hutton
also said that Grundy was sent by Penrose to Marion during
the interregnum.to press for Mellon's appointment, p. 179.

57Ibid. p. 183; Hearin s on Ex enditures in Prhmar ,
p. l68;"""dan George W. Pep"p—er'E,£'PEIIaHeEI EIa IZw“"""er T'I'n u'%o-
bioggaphy (Philadelphia: J.S. L pp noott Co., , p. 2.
58New York Thmes, June 11, 1926.

59Louis Overacker, Mono in Elections (Now Yerk: The
Macmillan Co., 1932), p. A .

 

188

In a joint appearance with Senator David Reed and
Secretary of Labor Davis at a rally in Motor Square Garden
in Pittsburgh, Mellon contributed to the campaign the only
public, political speech of his life. So immersed.had he
become, veteran political commentator Frank Kent believed
him to be staking his political reputation on the outcome;
if Pepper lost, it was axiomatic that Mellon would re-
tire.60

The Secretary's help not withstanding, Pepper went
down to defeat as the Vare strategy of splitting the drys
and turning out the Philadelphia vote worked perfectly.
But in a surprise finish, Fisher eked out a narrow victory
over Vare's man, Edward Beidleman. Vare had one senate
seat, Mellon the other plus the state house, and the state
chairmanship was left to be decided. Taking no chances,
W.L. Mellon was directed to run and his victory assured
the Secretary of control over the state party until 1928
and helped recoup some of his lost prestige.

Rummr flew as to the sums spent in the Republican
primaries in Pennsylvania and Illinois and a Congressional
investigation was demanded. A special committee convened
in mid-June and was chaired by Mellon's old nemisis Senator
James Reed (DéMo.). The Reed Committee revealed the seamy
details of the primary campaign costing over $3 million.

Placed in a compromising situation, the principals were

 

60Frank Kent, ”Pinchot 1 Pepper E’Vare,' Nation,
April 1149 1926, p. 399.

189
forced to defend their wanton use of money. Both the
Secretary and.his nephew blamed the primary system.for
causing expensive, intra-party factionalisme The high
cost of advertising, letter campaigns and poll watchers
were the product of such a system. They vigorously denied
having spent a dishonest dollar, that poll watchers, for
example, were necessary in a state that by and large lacked
voting machines.61 Given time, they would account for all
of it.

The Reed Committee continued hearings during the summer,
with the excesses of the Illinois primary as the principal
topic. Mellon avoided being called to testify by sailing
for Europe on a.three month cruise, hoping that by the
time he returned the issue would have died. When the com-
mittee met into the fall and winter months, encouraged by
Governor Pinchot's certification of Vare's November victory
with the words ”on the face of the returns, William.S.

Vare appears to have been chosen by the qualified electors"
instead of the simple "duly chosen,” Senator David Reed
prohibited its continuance after adjournment by filibuster-
ing it to death in February.62 The Pennsylvania Senator
argued that an investigation was proper, but that it should

 

61New Ybrk Times, June 15, 1926.

62M. Nelson McGeary, Gifford Pinchot, Forester-
Politician (Princeton: Princeton University Press, 1960),
p. 325. Pinchot also publicly claimed that Vare's nomina-
tion was ”partly bought and partly stolen.” Ibid.

190
be done by the appropriate Senator committee, not a temp
porary one packed.with Democrats to examine Republican ir-
regularities.

While Reed was filibustering over the Reed Committee,
Mellon brought in a new Under-Secretary, Ogden Livingston
Mills, marking a new departure for Mellon and the Treasury.
The Secretary was approaching seventy-three years of age,
three years beyond his biblical allotment of three score and
ten, and was visibly slowing down. Never dynamic in his
appearances, by 1927 he had relied.more and.more on his as-
sistants to do the public work for him. When the position
of under-Secretary was created in 1921, some had thought
that the man should be a permanent, non-political appointee
like the British system, but as was shown with Parker
Gilbert and Garrand Winston, he became the right hand of the
Secretary. In the case of Mills, Mellon's dependence upon
his chief assistant grew to the point that many referred to
him as the real Secretary, a position he formally assumed
in February, 1932.

The choice of Mills was typical of Mellon's penchant
for surrounding himmelf with young, talented underlings.
The new Under-Secretary had several virtues which defined
his capability. Ideologically, he was in complete agree-
ment with his superior on all economic matters and at thmes

expressed a sense of conviction even deeper than Mellon,

191

and would defend.his beliefs in very aggressive fashion.63
Writing to Owen Young in 1922, the brash, freshman Con-
gressman expressed a viewpoint that would endear himself
to any conservative financier. "If I were a dictator and
could write my own ticket, the first two goals which I would
reach for would be the balancing of the budget of the united
States Government and the return to the gold standard by
Great Britain.”6u On Capitol Hill, he was reputed to have
one of the best minds on the Ways and Means Committee and
he had endeared.himme1f to the administration by his support
of its measures, particularly his floor leadership of the
Revenue Act of 1926. Politically, he was safe, having been
a member of the platform committee in 1920 and 19214 and
running for governor of New York in 1926 on an administra-
tion ticket in the face of insurmountable odds in the foam
of Al Smith. That Mellon was aware of’him.came out in the
election when the Secretary broke precedent and endorsed
Mills, the only candidate he ever publicly supported out-
side of the President and his men in Pennsylvania.

Originally Mills was slated to assume his duties
February 1, but he delayed until Congress adjourned in early
March so that he might work in tandom with Mellon against

63His two books Liberalism.Fi hts On (New York: The
Macmillan Co., 1936) and Tie Seven§een Million (New Yerk:
The Macmillan Co., 1937) are two excellent expressions of

the depth of his convictions and his aggressiveness in
their defense.

6hMills to Owen Ybung, December 16, 1922, O den Mills
ngggg, Manuscript Division, Library of Congress, Box 9.

192
the McNary-Haugen farm bill. The Secretary was known to
be against the bill, having spoken negatively as to its
merits in the previous session. Calling it uneconomical
and claiming that it would raise consumer prices, he de-
clared that I'we cannot oppose fundamental economic laws."65
That statement was made the day after his defense of the
Pennsylvania primary expenditures and the combination
brought on a storm.of criticism.

The Secretary privately expressed opposition to the
McNary-Haugen bill along other lines.66 Many of the bill's
supporters likened it to an agricultural tariff, but he
decried such.notions, arguing that the farmer's problom
had nothing to do with the tariff. The real problem.was
purchasing land at inflated prices and that the deflation
of agricultural land values must work itself out just as
industry struggled through the deflation of 1921. Here
Mellon was citing an immutable economic law, deflation must
follow inflation, and man must resign himself to the work-
ings of nature. This type of reasoning would be heard more
often after 1929. The Treasury had.hoped to publicize this
letter during the summer of 1926, but changed its mind for
fear of attracting personal criticism to Mellon at a time
when the public was beginning to forget the primary ex-
penditures.67

 

65§gg_gerk Thmes, June 16, 1926.

66Mellon to James Witherow, June 8, 1926, Tariff 1926-
27 File, Official Correspondence, Box 128.

67Winston to Mellon, August h, 1926, Letters to Europe
File, Official Correspondence, Box 221.

193

These arguments were repeated in February, 1927, but
neither he nor Mills could stem.the tide in Congress. Like
the bonus in the previous Congress, McNarybHaugeniamihad
grasped the imagination of the majority and only a Presi-
dential veto prevented it from.hecoming law. EVen then,
the veto may have been overridden if it were not for
Senator David Reed's filibuster.

While denying that McNary-Haugenism could act as a
tariff for agriculture, Mellon came out strongly for a pro-
tective tariff for industry. For nearly six years, apart
from the Alcoa controversy of 1921;, he had followed
Gilbert's advice and avoided any mention of the tariff.

The persistent demands of the agricultural sector and a
plea by American and European bankers for mutual tariff re-
duction led.him.to make an exposition on the subject.

In his position statmment, the Secretary flatly de-
clared:

Our tariff policy has been mainly responsible
for the development of manufacturing in America.

Our tariff policy has brought to rican labor
the highest real wages in history.

Any reduction of the tariff would mean a corresponding de-
cline in the standard of living for as he had written the
President some months before: "Business prosperity is the

barometer of the individual prosperity of our citizens” and

———-—

68Tariff Statement of October 25, 1926, Tariff 1926-
27'File, Official Correspondence, Box 128.

19h

business prosperity rested on the tariff.69

Rather than restrict imports, Mellon argued that our
tariff policy had had the reverse effect. A.comparieon of
the volume of imports during the first seven months of the
lower Underwood Tariff (Werld'War I beginning seven months
after its enactment) with that of the last seven months of
fiscal 1926 showed that the level had increased in the
later period because volume, he said, was controlled by the
purchasing power of a nation, not by its import duties.
Lower duties would initially mean increased imports, but
these imports will cause a restriction in American business,
lead to unemployment, lower wages, and a decline in pur-
chasing power, culminating in a reduction in imports.70

He did however agree that Europe needed lower tariffs,
not to help American producers but to assist its own for
the'World'War had caused a restructuring along ethnic in-
stead of economic lines. Producers were having a difficult
thus obtaining raw materials or markets in other countries
and.Mellon proposed a common market of sorts so that Europe
could be a self-sustaining economic entity like the forty-
eight states of America.71 In other words, Europe had the

ammo problem.America had under the Articles of Confederation.

69Mellon to Coolidge, June 5, 1926, Budget-Business
Organization of Government File, ngicial Correspondence,
Box 22.

7oTariff Statement, Official Correspondence, Box 128.

7llbid.

195

The tariff exposition was Mellon's most brilliant
state paper. The economics of it were and are highly
questionable, but it is undoubtedly a masterful defense
for a high tariff policy.

The Federal Reserve Board became something of a prob-
lem.for Mellon in this period. ‘During the summer of 1927,
the Board had accelerated its program of reducing the dis—
count rate so as to stop the gold flow from Europe and
provide credit in the farm areas during harvest. The plan
worked in that for the first thme since 191k gold began to
move out of the country, but many who feared inflation were
critical and reminded the Board that the Federal Reserve
System.was a domestic institution and not an international
bank.72

The Chicago Federal Reserve Bank, however, balked at
the Board's August directive to reduce its rate and pre-
cipitated a crisis. Since it was economically unsound to
have a variation in rates among member banks and the
Chicago refusal presented a threat to the power of the
Board, Governor Crissinger forced through the Board by a
h-B vote a resolution demanding acquiescence.73 Through
Benjamin Strong of the New Yerk bank, the Chairman asked
the Governor to delay the vote until he returned from his
European vacation, but Crissinger did not tell the Board

 

72"Explaining the Move Toward Easier Money,” Literary
Digest, August 20, 1927, p. 52-

73NewYork Times, September 9 and 16, 1927.

196

of the request.7h When the Secretary arrived in Washington
in early September, Chicago was threatening to go to court
and challenge the power of the Board to institute rate
changes.75

Though he disagreed with Crissinger, there was little
that could be done, except to soothe feelings. To recon-
vene the Board and change policy might destroy the power
and effectiveness of that body. The forced resignation of
Crissinger, the last vestige of Harding on September 15,
went a long way to calm.the situation. He claimed that
he had intended to resign earlier, but waited for the Pres-
ident and the Secretary to return from.their vacations.
The common belief was that Mellon had taken advantage of an
Opportunity to rid himself and the Board of Crissinger.76
With the former President of the First National Bank of
Marion gone, Chicago accepted the Board's directive, but
requested that the Secretary have the Attorney-General
draw up an opinion on the role of the banks and the Board
in making rate changes. Diplomacy and power politics had

7hLester V. Chandler, Ben amin Stron Central Banker
(Washington: Brookings Institute, I958), p. HEB.

75The law was vague as to just what the role of the
Board was to be in developing policy. Following the Chicago
case, there was a flurry of Congressional activity to de-
lineate the role in either a broad or restrictive sense,
but no formal legislation was passed until the Board was
reorganized during the early stages of the New Deal.

76Charles S. Hamlin, MSS, Index-Digest, Manuscript
Division, Library of Congress, Vol. 12, p. 151 and New
York Thmes, September 16, 1927.

 

 

197

averted a constitutional crises of sorts.

The head of the Minneapolis Federal Reserve Bank,
Roy A. Young, succeeded the Marion banker as Governor.
The New York Times reported that the Secretary preferred his
former assistant, Parker Gilbert, but the law prohibited two
members from.the same district and Vice-Governor Edmund
Platt held the New York seat. The ggppp_did, however,
question the likelihood of Gilbert resigning his $h5,000
post as Agent-General for Reparations for a prestigeous job
that paid only $12,000.77

The problems of the Board in this period were not al-
ways so acute and in one instance Chairman Mellon inadver-
tently gave a rare display of leadership. He actively
supported the McFadden-Pepper banking bill as 'the most
important piece of banking legislation enacted since the
Federal (R)eserve Act."78 Designed primarily to give branch
banking power to national banks and to provide easier access
for state banks into the national banking system, the bill
also provided for indefinite extension of reserve bank
charters. In simplist terms it gave permanency to the
system: it would not expire as had the First and Second
National Banks .

In describing the bill, the Secretary was more inter-

ested in the branch banking aspects than the charter

_

77New York Times, September 18, 1927.
78Annual Report, 1926, pp. lO-lh and 1927s P. 86.

198
provision.79 The bill was drafted by the Treasury Depart-
ment and as written did not include the charter provision;
that was added by amendment. Though he supported the amend-
ment, the fact that it was omitted when written indicates
something, lack of interest or lack of forethought perhaps.
His interest in permitting branch banking for Federal Re-
serve member banks was a matter of concern for the Mellon
National Bank. If it was to maintain its banking hegemony
in an expanding Pittsburgh, branch banks would be neces-
sary. The McFadden-Pepper bill and the repeal of the gift
tax are the only two items that this writer has seen in
which the Secretary had a direct, personal interest in
their passage and actively worked for them. The repeal
of the gift tax, for example, was followed by his insti-
tuting a program of divesting his wealth to his children.
Of course, many other laws were of direct and indirect
benefit, but these are the only cases where a conflict in
interest is clearly evident.

Before leaving the mid-decade period, there is another
subject deserving of attention, the changes in the size of
currency. Upon the recommendation of fiscal Assistant
Secretary Charles S. Dewey, Mellon directed that a Treasury
committee study the feasibility of reducing the size of the

 

79This was most evident in the promotion of both as-
pects in the 1926 report, pp. lO-lh, written by David
Finley. Finley to Mellon, November 15, 1926, Federal
Reserve Banks-Renewal of Charters File, Official Correspon-

dence. Box 52.

199
currency. The impetus for this move, like so many other
policies, was economy; it was estimated that the govern-
ment would save $2 million annually since smaller bills
would not have to be folded as much, thus increasing the
life of a circulating bill. Problems such as cash regis-
ters, money counters, and wallet sizes had to be overcome
before he gave the go ahead in May, 1927 to print bills
approximately two inches shorter in length and breadth.
This was the first alteration in American money since 1861
when the federal government began producing paper money on
a massive scale.80 That such a small matter would be a
concern to Mellon indicated the seriousness of his commit-
ment to economy. Anyone familiar with the old bills must
be appreciative of his interest.

The period 1926-27, the Sixty-ninth Congress, was
Mellon's zenith. He had achieved.his major goals of
scientific tax reduction, successful refunding of the
foreign debt, and progressive reduction of the domestic
debt. The Prohibition Bureau was reorganized, a beauti-
fication program.was begun in Washington, a political war
in Pennsylvania was won, Donald Crissinger was replaced at
the Federal Reserve Board, and cost of printing currency
‘was reduced. With no campaigns to wage, he became a con-
servative in the literal sense of the word--one who con-

serves, one who protects what he has or maintains the

 

80New York Times, May 27, 1927 and Annual Rgport,
1927s PP. ‘ o

200
status quo. Ogden Mills was brought in to assist in the
financial conservatism and Mellon could look forward to
the end of the Coolidge epoch, perhaps to dream wistfully
of retirement. The time was Opportune to retire and see
how things were going at the bank. Having reached his

zenith, the only direction left was down.

CHAPTER VI
FROM KINGMAKER TO ALBATROSS

The political tenor for 1927 and 1928 was set in
August of the former year when President Coolidge made his
famous ”I do not choose to run" announcement. With atten-
tion centered on the race for the Republican nomination
and the White House, all issues were evaluated for their
effect on these races. Interest in Treasury affairs shifted
with the political tides and Andrew W. Mellon's importance
was accented.more by his role as titular head of the Repub-
lican Party in Pennsylvania and as confidant of the lame-
duck President than by that as Secretary of the Treasury.
For the moment, the electorate was less concerned with his
economic theories than with his political leverage at Kansas
City in June.

Preparations for the campaign began in late October,
1927 when the House Ways and Means Committee met in advance
of the Seventieth Congress to consider a new revenue act.
Two years had passed since taxes had been altered and atti-
tudes had changed on whether or not taxes should be mate-

rially reduced. In the face of heavy Democratic pressure,

201

202
the Secretary'had delayed reduction until the Revenue Act
of 1926 had what he considered to be a fair test. Fearing
that the government was growing overly dependent on the in-
come tax and that too few people were contributing to it,
2 million taxpayers had been taken off the federal tax
rolls in the last three revenue acts, he had suggested re-
turning the surplus to the taxpayers in the form of a
credit, but the Congress had rejected such a program. The
Democrats dismissed the plan as a political subterfuge to
postpone reduction until 1928 so that the Republicans could
go to the voters with a fourth reduction in seven years,
and the majority on Capitol Hill turned a deaf ear to Mellon
for that same reason.

The tremendous $636 million surplus for fiscal 1927,
combined with the political facts of life in the upcoming
election year, dictated that there would be adjustments in the
tax structure. Knowing that much of the surplus was of a
temporary nature, not to reappear in fiscal 1928, and con-
cerned that the Congress might write an excessive bill as
each party zealously sought to ”outvMellon Mellon,” the
Secretary seized the initiative and proposed a modest de-
crease in revenue of about $225, about half of what
jFurnifold Simmons and the opposition were recommending.

Though he personally appeared before the Ways and.Means

Committee to express his sentiments, it was Under-Secretary

203
Ogden Mills who read and defended the prepared statement
while his superior sat quietly puffing on a cigar. Re-
porters took this as a sign of Mills's growing importance
and Mellon's increasing dependence on his assistant. Mills
was an aggressive underling, and some suspected that with
his background as a.member of the Ways and.Means Committee
and his participation in drafting the economic sections of
the Republican platform.in 1920 and l92h, he might grow to
overshadow his superior. The Secretary's willingness to
delegate authority to subordinates was thought to be
potentially disastrous in the face of a.hard driving assis-
tant like Mills.

The two sides differed significantly over the size of
the cut, but there was remarkably little divergence over
what taxes would be modified to reach the desired level.
Both saw a need for lessening the burden on corporations
which had received little relief since the excess-profits
tax repeal in 1922. There was agreement that the surtaxes
on $10,000 to $70,000 brackets, the "middle incomes”
Senator Simmons called.them, should be adjusted downward
since they had been ignored in the 1926 Revenue Act, and
that the estate tax should be repealed and returned to the
states. Realizing that the differences were in degree and
not kind, Mellon invited.Houss minority leader John Nance

Garner to a conference at the Treasury.1 Garner was not

 

1New Ybrk Times, October 25, 1927.

20h
tempted by olive branches for he knew that if his party in-
tended to claim credit for the reductions, it must operate
in the public eye and avoid negotiated settlements.

The Democrats under Garner hoped to win popular ap-
proval by exceeding the Secretary's recommendations. They
stood for a lowering of the corporate income tax, for ex-
ample, from 13% to 11% instead of the 12% planned by the
Treasury. Repeal of the automObile excise tax was also
advocated, though Mellon wanted to retain it as a broad
based tax which diminished the government's dependence upon
the income tax. Only 2i-million people paid income taxes,
but over 20 million had paid the automobile levy. An end
to that tax was part of the Democrats more extensive demand
for the removal of all wartime excise taxes.2

The hopes of both Mellon and Garner went tomporarily
awry when Ways and Means Chairman‘William R. Green ignored
them.and proceeded to draft his own bill.3 By a straight
party vote, the Republican majority on the committee de-
feated Garner's proposition and went on to approve the
Chairman's version. The committee refused to repeal the

estate tax or alter the surtaxes, and set the corporate

 

2R.G. and 6.0. Blakey, The Feder 1 Income Tax (London:
Longmans, Green and Co., l9h0), pp. 257-81.

3Chairman Green's ”treason” cost him.his job in that
President Coolidge nominated him to the United States Court
of Claims. He had ignored administration wishes in the
l92h and 1928 revenue bills, and he was not promoted up and
out to a position that he had not sought, but accepted,
having tired of fighting the administration. Ibid., 290.

205
income tax at 11%%. The total reduction was about $250
million, of which $166 million would go to the corporations.

On the floor, Garner led a spirited drive and suc-
ceeded in attaching a graduated corporate income tax from
5% to 11%% and ending the tax on new car purchases. There
were several lesser changes as well and so altered was the
bill from.the one sent by the committee that the Republican
leaders tried to rscommit it. As voted by the House, the
Garner plan projected reductions of $290 million in spite
of the fact that the Treasury had predicted a surplus of
only $252 million.

With the Democrats having seized control of the revs-
nue bill in the House, and perceiving a direct threat to
his sacred cow, the balanced budget, Mellon appealed to
Reed Smoot, Chairman of the Senate Finance Committee, to
delay consideration, at least until March when the quarterly
tax returns would be available. With current figures on
hand, the Secretary thought that his case would be buttres-
sed and Smoot agreed to his request.“ He also sent a
public letter to the President, reminding him.that a
"balanced budget is an essential element of any sound fiscal
system, and as long as I am Secretary, the Treasury Depart-
ment will resist the undermining of the principle. . . ."5

While stalling for thus, the Treasury chief launched

 

 

1‘Annual Report of the Secretary_of the Treasugy,
1928, pp. - .

5Copgressional Digest, January, 1928, p. 25.

206

an attack on the Chamber of Commerce for supporting Garner
and the Democrats. As a result of a survey of its member-
ship, the Chamber issued a report calling for $h00 million
in tax adjustments, particularly a lowering of the corporate
income tax to 10%. The conversion of that bastion of Re-
publicanism to the minority party's tax program indicated
that the Democrats plans for the 1928 campaign were falling
into place. The Chamber was not so much deserting its hero
as it was succumbing to the forces of greed and self-
interest and the Secretary sought to shock them.back to
reality. In a public letter to its President, Lewis E.
Person, he chastized the group for publishing an inaccurate
report which lacked detailed figures and offered unsubstan-
tiated criticisms of Treasury estimates. The pamphlet, in
Mellon's view, was "hardly worthy of a businessmen's re-
port."6 The President had already said substantially the
same thing and even Chairman Green had objected to the
Chamber's demands.7

In a speech to the Women's National Republican Club
in New York City, he generalized his position vis-a-vis the
Chamber of Commerce to include the entire business commun-
ity. Prophesying that a reduction in excess of $225 million
would lead to unfavorable economic consequences, he re-

minded businessmen that they would suffer most and should

 

6Annual Report, 1928, pp. 285-87.
7Blakey, Income Tax, p. 281.

207

therefore refrain from.encouraging Congress to exceed the
safe level. In line with his consistent demand that taxa-
tion should be equitable and his concern that the base of
the income tax was shrinking, Mellon noted that more people
owned stock than paid federal income taxes and to exceed
Treasury recommendations would mean a further dwindling of
the base.8

That a Republican Secretary of the Treasury would un-
reservedly criticize the business community in general and
the Chamber of Commerce in particular in an election year
was indicative of Mellon's conviction of the need for
scientific tax reform as opposed to simple reduction to
appease certain interest groups. If he was a tool of busi-
ness, he should have acceded to such demands as a 3% slash
in the corporation tax as opposed to the 1% cut that the
stood by. He was taking a calculated risk in attempting
to make the commercial and industrial sectors aware of the
pitfalls of the Democratic tax scheme.

Mellon was praised for his courage by Thomas S. Admms
in his presidential address to the American Economics Asso-
ciation, "Ideals and Idealism.in Taxation.” An advisor to
the Treasury for over a decade, Adams stated:

The Secretary of the Treasury and important
members of Congress . . . have repeatedly in

recent years fought for tax measures which
they knew at the time were foredoomed to

 

8New Ybrk Times, January 15, 1928.

208

failure. They knew the efficacy of reiterated
enunciation of the sound but unpalatable truth.9

Though somewhat overdone, it was a glowing tribute from.the
academic community of professional economists.

The Secretary continued.his aggressive tactics when
the Finance Committee mat in April. Armed with figures
based on the March.15 returns, he scaled down his recomp
mendation to $180 or perhaps $200 million at most depending
on how Congress should act on some appropriations. Due to
a mild business recession, the surplus had been re-estimated
at $212 million, $50 million less than originally thought.
Congress and the public at large had become increasingly
uneasy about the Treasury's continuing program of changing
estimates, particularly when the modifications seemed de-
signed to fit its programs and were usually wrong when the

final figures were in. It was by no means certain that the

upper house would accept the adjustments.

with the Senate evenly split, forty-seven Republicans
versus forty-six Democrats and one Farm-Laborite, SmoOt,
assisted by David Reed, had a difficult time steering
IMellon's proposals. The House approved graduated corpora-
tion.tax was replaced by a 12%% flat rate and surtaxes on
middle incomes were modified, but the estate tax was con-
tinued and the House repeal of the automobile tax was sus-
tained. The Insurgents, led by George Norris, were able

to force through an amendment providing for publicity of

k

9A2erican Economic Review, XVIII (March, 1928), p. 7.

209
tax returns, something the Secretary had traditionally
fought.

In the Conference Committee, the publicity section was
discarded as were the changes in the surtaxes voted by the
Senate, and a compromise of 12% was reached on the corporate
income tax. The fact that surtaxes were not lowered was a
surprise in view of the bi-partisan support. The House had
rejected.modification when Chairman Green argued that com»
bined with the changed corporate tax, it would lead to a
deficit, and the Senate went along with the lower chamber in
bargaining for other points. No protest was heard because
of this omission; perhaps the "middle incomes" were satis-
fied with.the changes in the corporation tax and, in view
of the wartime levels, did not consider the 20% maximum.sur-
tax a burden. The final figure agreed upon was a decrease
of $222 million, a sum in excess of Treasury wishes, but not
beyond the realm.of possibility.lo

As a political issue for the campaign, the Revenue Act
of 1928 belonged to neither party; it was a true compromise
in that nobody was totally satisfied. The Democrats had
failed in their attempt to appeal to the economic self-
interest of the more well-to-do segment of American society
as the Republicans took credit for their fourth tax reduc-

tion since returning from the political wilderness of the

A;

10The above discussion relies heavily on chapter 8,
I‘The Revenue Act of 1928-Reduction of the Corporation
Taxes,” Blakey, Income Tax, pp. 276-300.

210
Wilson years. Though not receiving all that he suggested,
the Secretary had won a victory in keeping the Treasury
close to equilibrium. For two years his rear guard action
had delayed downward revision and when it did come, he
was able to keep the amount to a realistic level. $222
million was a far cry from the $hOO-$SOO million that Garner
and Simmons talked of in the early going.

It is this writer's belief that Mellon would not have
been disappointed if the Revenue Act of 1928 had failed
passage. He was more than satisfied with the 1926 revision
and would have preferred to maintain it were it not for the
pressure being applied by the politicians and the business
community. The program that he recommended was a modest
one designed to steal the opposition's political thunder.
At no time in the process did he actively press for de-
creases as he had in 1921, 192k, and 1926. In fact the
reverse was true, witness his delaying tactics after the
bill passed the House and the revised estimates that he
presented to the Senate. His principal goal was to keep
reduction to the lowest possible level and prevent any
drastic changes in the framework of federal taxation. In
both areas he triumphed. Balanced budgets, debt repayment,
and a scientifically established tax rate were more im-
portant to him.than sops to the electorate in a Presidential
year. He was willing to make some minor concessions, but
he would not bend on principle.

While the Revenue Act of 1928 was winding its way

211
through.the Congressional maze, the campaign sped up in
other directions. The Secretary of Commerce, Herbert
Hoover, was beginning to make his move for the Republican
nomination and presented a greater threat to Mellon than
the machinations over tax reduction.

The two had been cabinet partners for nearly eight
years, but their relationship never expanded beyond that of
business associates. Their inclusion in the official family
‘was the product of an intra-party squabble and.a.mutual
coolness resulted from.their contesting for the position of
first minister in the Cabinets of two weak Presidents.
‘While Hoover was attracting public attention and creating a
personal following, it was Mellon who had the executive ear.
If anyone was first minister, it was Mellon; but if either
'was to succeed Coolidge, it would be Hoover.

Though not as clear as the above, there was another
reason for the distance that existed between the two; Mellon
did not trust the Commerce Secretary. This distrust per-
meated the conservative, Regular Republican wing of the
party. The Treasury chief was a devout conservative and
always acted the part, but his Cabinet partner occasionally
deviated from.the norm. Allowing his name to be put in for
the Democratic primary in Michigan and his willingness in
1922 to endorse a public works program.that Mellon believed

a threat to the balanced budget were two examples of

212
Hoover's wandering.11 That he was prone to stray fostered
a spirit of distrust or at least apprehension amongst con-
sistent conservatives who feared that he might assume a
"liberal" posture should the issue or political exigency
demand. Hoover could be flexible in a way that Mellon
could not.

In spite of the fact that he would be nearly seventy-
five years of age on March h, 1928, many people touted
Mellon as a possible presidential contender. The Hearst
papers frequently mentioned him as an ideal candidate and
several other independent newspapers endorsed him, includ-
ing thernver Post, New York American and Les Angela;
Examiner.12 Henry A. Rose of the National News Service
wrote and widely distributed a pamphlet in early 1928 citing
Mellon's achievements, apparently testing the atmosphere for
a possible candidacy.13 The Coast Banker and California
Banker illustrated the hopes of some members of the banking
community, publishing the editorial, "Why the Times Call
for a President of Mellon's Type.'1h Friends in Pittsburgh

launched a movement and a great many private citizens wrote

 

11Hoover to Mellon, February 2, 1922 and Mellon to
Harding, February 18, 1922, Labor file, Official Corres on-
dence of the Secretar of the Treasury, Record Group 53,
National Archives, Box .

12See editorial clippings, Secretary's file, Official
Correspondence, Box 213.

13Ibid.
11* id.

213
him.personally urging him.to throw his hat in the ring.

Flattered by such adulation, he respectfully declined
all offers, emphasizing his age as an insurmountable bar-
rier. John Nance Garner ventured that he doubted ”very
much whether the Democrats could beat him," but the Secre-
tary heeded the advice of others like the New Yerk Times
which editorialized that ”his nomination for the Presidency
would be absurd to the point of impossibility. . . ."15
Tempted no deubt by the possibility of the White House, the
Pittsburgh banker contented himself with.the role of king-
maker as Chairman of the seventy-nine man delegation from
the Keystone State.

The Hoover movement caught fire in January, 1928 and
Under-Secretary Ogden Mills and Commissioner of Internal
Revenue David Blair quickly became an unabashed supporters.
When questioned about his status, Mellon replied:

I mm not indicating any position on the matter,

and I have not done so to anyone. . . . At

this time I am not for orlggainst anybody.

In leisure there is luck.
He was unable to overcome his antipathy and clearly evalu-
ate the political realities as did his subordinates. Being
on the "right” side early was unquestionably an asset to
Mills in his ascendency to the Secretaryship in 1932.

Emotionally incapable of supporting Hoover, Mellon's

alternatives were limited. Arthur Henning, washington

 

15m»: York Times, December 10 and 30, 1928.
16Ibid., January 17, 1928.

211;

correspondent for the Chicago Tribune, created a flurry of
activity when he reported that the Secretary was going to
back former Secretary of State Charles Evans Hughes.17 At
a specially called news conference, the Treasury chief
denied initiating a Hughes movement, but admitted.that his
formwr colleague was a worthy candidate.18 The Republican
standard bearer in 1916 cut short any boom by withdrawing

his name from.public consideration.

The other possible contenders were the former Governor
of Illinois and 1920 presidential aspirant, Frank Lowden, and
Vice-President Charles Gates Dawes. Neither could hope for
iMellon's endorsement because each supported the McNary-
Haugen export solution to the problem.of farm surplus.19
This placed.the Secretary in the undesirable situation of
Ihoping that Coolidge would change his plans or prove amenable
to a convention draft, though he publicly expressed his be-
lief that the President was serious in his disclaimer and
Coolidge himself told the Republican National Committee that
it must "vigorously continue the serious task of selecting
another candidate."20

Most historians believe that Coolidge was coyly angling

:for a draft, but contemporary newspapers and periodicals

 

17Chicago Tribune, September 1h, 1927.
18New York Times, September 15, 1927.

19,129.. May 13. 1928 and W.L. Mellon, Judge Mellon's
.3429; (ll-Pu 19h8). p. héh.

20New York Times, September 15, and December 7, 1927.

215

indicate that Mellon was dreaming an impossible dremn.
Knowing that his Treasury chief and others would like to
see him.run again, the President never gave any positive
indications of his availability. The New York Times re-
ported that Mellon, Charles Hilles of New Yerk, and National
Chairman William Butler of Massachusetts might try to block
Hoover at Kansas City and force the delegates to call for
Coolidge, but encouragement from.the White House was want-
ing.21

As speculation grew on what Mellon's role would be in
determining the outcome, a scandal erupted which threatened
to terminate his career. The Teapot Dome investigating
committee revealed that in 1923, the Secretary, Chairman
Butler, and three others had each received $50,000 in
Liberty Bonds in exchange for an equal cash payment toward
liquidating the Republican debt of 1920. Though delivered
by then National Chairman Will Hays, the bonds had origin-
ated with Harry Sinclair, an oilman under indictment for
bribing Secretary of the Interior Albert Fall, and a dummy
corporation, Continental Trading Co., Ltd of Canada.22

With the tax bill languishing in Congress, the revela-
tion suddenly became the Democrats best campaign issue.
Oil had not smeared Coolidge and Mellon in 192k, they were

clean. Now, with the retiring President out of the picture,

 

ZlIbid., February 16, 1928.

22 1a., March 9 and 11, 1928.

216
the Republican's number one campaign asset seemed about to
be destroyed by the aged, but reviving scandal.

Rather than use evasion tactics, the Secretary boldly
admitted to being a party in the bonds for cash exchange
and volunteered to appear before the committee to offer a
full explanation.23 In two hours of extensive examination,
he revealed a part of his old self as he testified freely
without the assistance of a lawyer or one of his underlings.
Yes, he had received the bonds and knew that they had been
provided by Sinclair, but he had had Parker Gilbert return
them.aLmost immediately because he intended to make a con-
tribution to his party's debt and to keep the bonds would
amount to a false contribution. He had, he explained, felt
badly that his only contributions to the Harding campaign
had been a mere $2000 and that he had planned to wait until
the end and help clean up matters witha more sizeable con-
tribution. That any of his banks made loans or in anyway
”carried” the Republican debt was denied, thus negating
the reports in 1920 that he had ”bought” the Treasuryship.2h

As to why he had not come forward earlier and revealed
the transaction, Mellon said that he had not kept the bonds
and that he saw no public importance in revealing Hays's
proposition. He testified.that he never made a connection

between the bonds and Teapot Dome and believed that his

 

23Mellon to Senator Thomas J. Walsh, March 10, 1928,
Oil Investigating file, Official Correspondence, Box 86.

2hN'ew‘York Times, March 1h, 1928.

217

involvement ended with the return of the bonds and.Hays's
promise to do the same.25

0 Committee Chairman Thomas Walsh.(DéMont.) expressed
the belief that ”Mr. Mellon's part in the Republican deficit
business had been a credible one,” and.the public agreed.
His tactic of confrontation succeeded and the potential
scandal fizzled as rapidly as it had appeared. Teapot Dome
was old news and though what Mellon did may have been un-
ethical, it was not illegal. The only person visibly
disturbed by the Secretary's role was Senator James Couzens
who introduced a resolution that ”it was the sense of the
Senate that Andrew W. Mellon should resign."26 Shrugged
off as a product of the longstanding Couzens-Mellon feud,
the resolution was buried on the calendar.

Shortly before the hearings, George Harvey's biography
of Henry Clay Frick came out, and in it was the claim that
Frick and Mellon had bankrolled the Irreconcilables' pub-
licity campaign against the Treaty of Versailles.27 One
would think that this and.the Walsh committee revelations
would upset the electorate about the use of large sums of
money in politics, but it did not. Apparently the man on

the street accepted.the marriage of money and politics as

 

25 id.
26U.S., Congressional Record, 70th Congress, 1st
Session, 1928, LXIX, Part 5, p. Sth.

27George Harvey, Henr Cla Frick the Man (New York:
Charles Scribners and ons, , p. . e lon refused
to comment on Harvey's claime

218
part of the business ethos of the Twenties.

That the Secretary did not come forward earlier to
offer what he knew is revealing of his political ethics.
Like Pilate, he washed.his hands rather than expose dubious
activities within his party's hierarchy. Hisresponse to the
Walsh Committee was similar to his reaction to the Reed
Committee in the Vare-Pepper primary investigation. When
asked about his contributions then, he said, it was like
giving money to a church. Both were strange replies from.a
man who even his political enmmies ordinarily agreed ”that
his code of ethics were of the highest order.“28

As winter blended into spring and as taxation and
scandal fell by the way as salient Democratic campaign is-
sues, it became more and.more evident that Mellon could
choose the Republican nominee. Winning primary after prim,
ary and converting state convention after state convention,
Hoover emerged as an almost certain candidate. He fell
short, however, of a first ballot victory, something Pennsyl-
vania could give him.

Early in May, the Secretary travelled to Philadelphia
to caucus with his delegation. Meeting in Senator-elect
Vare's bailiwick there was talk that with Governor Pinchot
having denied any presidential aspirations,the Pennsylvania

contingent would go to Kansas City uncommitted and not for

A _ ~

28Williamc. Murphy, "Tale of a Tilt,” Commonweal,
February 27, 1929, p. h77.

219

Mellon as a favorite son.29 The Vare faction had blocked
the favorite son tactic, insisting that the tradition of
an uninstructed delegation be followed, thus postponing a
decision until the convention. There was growing sentiment
in the eastern wing for Hoover and Vare said that he was
"disposed” to support the Commerce Secretary. In the ninth
hour, Mellon simply stated that his Cabinet partner ”seems
to come closest to the standard we have for the Presidency,”
a comment that many Hoover supporters took to mean an en-
dorsement.3o To the Secretary, it was not an endorsement;
he was still seeking an alternative.31

With the Philadelphia branch moving closer to Hoover
each day, Mellon's grip on his state party lessened. The
selection of a Vare man, W.W. Atterbury, President of the
Pennsylvania Railroad, as National Committeeman over the
Secretary's preference of his nephew, W.L. Mellon, or Sena-
tor David Reed.was another sign of the decline of the
western wing. The Mellon machine did win on the choice of
Edward.Martin as the new state chairman and Vare had agreed
to let Reed run unopposed in the primary, but these vic-
tories were the product of bargaining and a search for
Iharmony in the face of a dividing caucus.

When the Grand Old Party gathered in camp in Kansas

29New York Times, May 12, 1928.
3oIbid., May 13, 1928.

31 1a., May 15, 1928.

220

City, the New York Times headlined: “Hoover Gains By
Delegate Switches, But Mellon Holds the Key to Nomination.”
Their Washington correspondent, Richard V. Oulahan had a
better understanding of the situation and wrote: ”Put it
another way, Mr. Mellon is all dressed up but he has no
place to go but the Hoover party."32 The Mellon-Hilles-
Butler triumverate may have wanted Coolidge, but at the
crucial moment, the President was as silent as ever.

0n the eve of the first session, Mellon's role as king-
maker was stolen. A few hours after he released a terse
statement that he would abide by the dictates of his state's
caucus, Vare declared that he and his supporters would vote
for Hoover, thus guaranteeing him the nomination.33 As a
result of the Primary investigation, the Senate had refused
Vare his seat and by throwing to Hoover the deciding bal-
lots, he hoped that the Republican nominee, a certain winner
in November, would help him.when the second session con-
vened. In one move, the Philadelphian had decided the
Republican nominee and seized control of Republicanism in
Pennsylvania. The victor of the seamy 1926 election was
hailed by the press as a kingmaker for doing what Mellon
could not bring himself to do. Speaking in layman's terms,
Will Rogers described things perfectly: ”Mellon had the

32Ibid., June 11, 1928.
33Ib1d., June 12, 1928.

221
money, but Vare had the votes.”3h His statement that de-
feated presidential aspirant and number two man in the
Coolidge administration Charles G. Dawes was the logical
candidate for a running mate was further evidence that he
had lost touch with political reality.

In the counsels of the victors, the Secretary was con-
spicuously absent, and as the convention rolled on, he re-
ceded into the background. The platform, exhibiting the
pens of Reed Smoot and Ogden Mills, praised his record as
”unrivaled and unsurpassed,” but the man whose appearance
was the highlight of the last quadrennial meeting passed
by unnoticed. No longer was he kingmaker; no longer was he
important. Upon his return to Washington, he tried to re-
gain some of his lost stature and break into the inner
circle by proclaiming that ”the outcome at Kansas City was
very satisfactory,” but that statement would not mdtigate
the fact that the ”greatest Secretary of the Treasury since
‘Alexander Hamilton” had succumbed to his prejudices and
committed political suicide.35 It appeared that the old
guard was changing.

As was his custom, Mellon set sail for his European
‘vacation in early July, leaving Treasury affairs and cam-
paign involvement to Mills. Throughout the summer Smith
and the Democrats vainly sought credit for debt and tax

 

3thid., June 13, 1928.

35Ibid., June 20, 1928.

222
reduction, but the ticket of prosperity, of ”two chickens

in every pot and a car in every garage" smashed the echo

of ”me too.” When they argued that they could “out-Mellon
Mellon,” the aggressive Mills indicted Smith for tripling
revenues inNew York during his three terms while noting
that the Empire State had not experienced tax reduction in
over a decade.36 Periodically, the Treasury Department
issued news releases that vividly illustrated its accom-
plishments over the proceeding eight years.

After his return from the Continent, Mellon's partici-
pation in the bitterly contested Smith-Hoover clash was
limited. In full view of the press, he reported to the
President that the nation's economic health was excellent
and, as the campaign drew to a close, made two innocuous
radio addresses extolling the virtues of the Republican
Party, not Herbert Hoover. The one speech was a fiasco for
as the Secretary nervously shuffled his notes, the micro-
phone amplified the sound into a thunderstorm as it passed
into the homes of America. As the Republican's principal
asset, the symbol of prosperity really did not have to do
anything; he need only survive until November.

To no one's surprise, Hoover won a landslide victory.
That Mellon remained in the official family was something
of a mild surprise. Given their relationship and his suc-

cesses in recent years, one might have expected him to

36223.9.” September 9, 1928.

223
quietly step out and retire at the peak of his popularity.

Looking at the issue from Hoover's standpoint, one
can see that the President-elect could not dismiss the
Pittsburgh banker and might be inclined to entice him to
stay should he decide to leave. In spite of his recent
clash with the business community over taxes, it still
idolized.him.and the Secretary's presence would mean a con-
tinuation of policies. To remove him might antagonize
business.

The question was why would Mellon want to stay. His
role as chief advisor to the President would end and he
would have to subordinate himself to a man who had been his
equal in the Cabinet. In addition, his decision to come to
Washington in 1921 had been contingent on his leaving in
l92h, government service being a prelude to retirement. Now
it was 1928, four years overdue.

This writer believes that Mellon stayed for two reasons.
The first was that he liked the work and the public adula-
tion that went with it. He was a man in whose fiber the
Protestant work ethic was so tightly woven that retirement,
though perhaps thought of and wished for,was beyond real-
ity. So long as he was physically and mentally up to the
task, he would continue. During the campaign he made no
secret of his desire to retain his Cabinet post, telling

reporters that "at my age, I might as well work here as

22h
anywhere else. I have made no plans about retiring."37
It was well known that he enjoyed living in Washington and
it was thought that even should he not return to the
Cabinet, he would probably continue living there. Some-
time earlier he had purchased a farm.a short distance from
the city.

The second and more important reason was his distrust
of Hoover. Having reached his goals, there was the possi-
bility that the President might upset them, perhaps retard
the debt reduction program.or alter the European debt to
appease domestic critics. Some unfinished business remained
that the chief executive might not view the same. The French
settlement had to be ratified and.might require additional
negotiations, and the development of Washington was in its
infancy. Only in October, 1928, as a FoundersDay Address
at Carnegie Institute of Technology in Pittsburgh, had the
patron of the arts, accompanied by President Coolidge,
publicly revealed the full details of his Federal Triangle-
Pennsylvania Avenue project.38 His trusted aide, Ogden
IMills, in declaring early for Hoover, had possibly changed
allegiances and might not forward Mellon's policies with

the zeal he had shown earlier. The Under-Secretary was

¥

37"Hoover's Heritage," Colliers, January 5, 1929,
p. 3h and New Yerk Ttmes, October 5, 1928.

38New Yerk Times, October 19, 1928. The speech it-
self was a complete fiasco. The Secretary was nearly in-
audible and unable to complete the full texts This talk
was a week after his ill-fated radio address.

225
growing more bold in his relations with his superior, and
a popular journal observed that ”time after time . . .
Mills interrupts (the Secretary) to present the Treasury
point of view or to define it in crisp, aggressive terms
that will look well in the evening edition.” This was not
a new phenomenon but a development over a long pried of
time.39 Some believed the New York aristocrat to be the
power behind the thrown who would either replace or suc-
ceed the Pittsburgh banker.

Though he had no evidence that his programs would be
reshaped, his suspicions nevertheless existed and the solu-
tion seemed to lie in remaining for a short while and es-
tablishing his policies as part of the new administration.
Analyzing the official family of the thirty-first President,
William G. Murphy wrote that ”it is inconceivable that he
(Mellon) would want to stay another four years” and that the
I'representative of a fast vanishing race” would soon re-
tire AC The Murphy analysis drew a lot of support from the
papers and other observers of the Washington scene.

That Mellon wanted to stay and that Hoover would re-
tain him did not offer a guarantee for the future. Several
Congressmen began laying plans to upset the calculations.

Shortly before Christmas, John Nance Garner opened the

-39”Backstage in washington,” Outlook, January 9.
1929, p. 61.

L‘OWilliam C. Murphy, "President Hoover's Cabinet,"
Current Historze Vol. 30, May, 1929, p. 270.

226
anti-Mellon campaign by accusing the Secretary of granting
secret tax refunds to his favorite corporations. Demanding
an investigation, the House minority leader denounced the
Treasury chief as ”the greatest Santa Claus in history.“41

The tax refund issue raised by Garner was a repeat of
James Couzen's charges first enunciated after the Internal
Revenue Bureau investigation of l92h-25. The Michigan
Republican Joined the battle, reporting that his investi-
gation had turned up tax cases bearing the notation "This
is a Mellon company."u2 The Secretary denied the charges
and declared that "if what Mr. Garner said was true, it
would be important."h3 Rather than defend.himself, he
pointed out that the Commissioner of Internal Revenue, not
he, adjudicated all cases and that those over $75,000 had
to be passed on by the Joint Congressional Committee on
Taxation. Therefore, if blame was to be placed, it should
be on Congress.

The problem.was not Mellon's granting excess rebates or
refunds, but the number of loopholes in the law and.the
price that corporations were willing to pay for legal talent
to argue their cases before a overburdened Board of Tax

Appeals. Even Couzen's biographer agreed that the refunds

 

thew York Times, December 20, 1928 and January 5
and 6, 1929.

thaul Anderson, "Hot News from Washington," Nation,
February 6, 1929, p. 160.

h3New Yerk Times, January 8, 1929.

227

were legal.uh The turnover in employees in the Commissioner's
office, many of whom reappeared as council to various cor-
porations, was only exceeded by the backlog in cases. In
1928, over 16,000 petitions were filed with the Board of Tax
Appeals.hs Wealthy corporations found it an easy task to
evade revenue acts written in the heat of partisan debate
and defended by an honest, but transient staff. The Trea-
sury was well aware of the situation and was partially suc-
cessful in remedying it. As for "This is a Mellon company,”
no corroborating evidence of personal intervention by the
Secretary was ever brought forward, and it was "an open
secret in Washington that his bright young men (his as-
sistants) embroiled him with Congress.“46

The Garner-Couzens attack proved to be the spark that
ignited Capitol Hill. Senator Kenneth McKellar, the Ten-
nessee Democrat who had spoke of impeaching Mellon in 192h,
attached a rider to the current deficiency bill requiring
publicity of refunds made with appropriations from.that
bill. An attempt to give the Board of Tax Appeals author-
ity over all refunds in excess of $10,000, and requiring
that the hearings be open to the public, barely fell short

of a.majority. The Treasury head argued that he could see

 

hhHarry Barnard, Inde endent Man: The Life of Senator
James Couzens (New Yor : arIes scribner and Sons, I956),

pe e
usBlakey, Income Tax, p. 5h6.

héMurphy, "Tale of a Tilt,” p. h77.

228

no reason for transferring the power when no one ques-
tioned Commissioner David Blair's honesty. Why make a
quasi-judical body into an administrative one? The real
issue Mellon said, ignoring the role of the Joint Congres-
sional Committee on Taxation, was who should administer the
law, the executive or Judicial branches, and that the
McKellar Resolution was "revolutionary and unwarrantedfl'h7

While McKellar, Garner, and Couzens were chasing the
Secretary over refunds, Senator Pat Harrison (D-Miss.)
opened a new front, prohibition enforcement. Prohibition
had been a.major issue in the campaign and the Pittsburgh
banker's one-time investment in the Overholt Distillery
Company had reappeared. The dry forces, which had been
silenced by a somewhat hostile Congress and the Seymour
Lowman-James Doran administration of the independent Pro-
hibition Bureau, renewed their criticism.thei Treasury was
not enforcing the law to its utmost. Commissioner Doran re-
sponded after the election, claiming that truly effective
enforcement would cost $300 million. Harrison added a $25
million rider to the deficiency bill, a challenge, he said,
to test the Secretary's sincerity.“8 The Harrison move
came on the heels of the Senate's rejection by only two
votes of Senator William Bruce's frivilous motion to give

Commissioner Doran the $300 million he said was necessary,

 

h7New York Times, January 12 and 23, 1929.
h31b1d., January 13, 1929.

229
an indication of the hostile attitude toward prohibition
that was developing in the Senate.

In the face of Congressional and Anti-Saloon League
pressure to accept the money, Mellon courageously objected
to the Harrison amendment. In a letter to the Chairman of
the Senate Appropriations Committee, he requested a delay
until surveys had been conducted to determine where and.how
the money could best be utilized, and suggested that part
of the money be given to the Justice Department and Coast
Guard for their work in enforcementJ-l9 The Secretary also
drafted a letter to Anti-Saloon League official, Bishop
James E. Cannon, to object that appropriation gave no dis-
cretion to the Commissioner or the Secretary for expenditure
beyond the Prohibition Bureau, thus denying funds to other
needy areas. More importantly, a flat sum appropriation
”would breakdown the safeguards of the budget and the effec-
tive and proper control which Congress exercises over the
expenditure of public funds.“ A dangerous precedent would
be established by such reckless use of the appropriating
power.50 To Mellon, the tripling of funds was not a panacea
that would immediately cure all of the ills of enforcement.

The controversy over the Harrison amendment was further
complicated by a growing demand by both wet: and drys for

an investigation of enforcement, hoping that it would provide

 

h9Ibid., January 16, 1929.
5°Ibid., January 22, 1929.

230
ammunition for their respective positions. With an inquiry
in the offing, it appeared that some in Congress were trying
to shift responsibility to the Treasury should the ”noble
experiment” prove a failure. Though Harrison was an ardent
dry, many of his colleagues were not, and for a decade they
had inadequately funded the program and had used the Bureau
for spoils.

President-elect Hoover blunted much of the criticism
with.the announcement that he would appoint a non-partisan
panel to examine the problem of enforcement.51 Shortly
after the commission statement, the White House let it
known that it was sympathetic to the idea of shifting opera-
tions entirely to the Justice Department, Mellon's long
sought goal.52 These plans proved sufficient to soften the
‘wrath of critics and the Harrison amendment died along with
the Edge-Jones resolution for a Congressional investigation.

While the refund and prohibition issues ebbed and waned,
Senator Gerald P. Nye (R-S.D.) opened a third front, in-
forming Hoover that the Insurgent Republicans would Oppose
confirmation if Mellon's name was sent to th.etm.53 No
particular reasons were given beyond the long standing
antipathy that the Insurgents held for him.

The Nye proposition along with the other Congressional

 

511b1d., January 17, 1929.
52Ibid., February h, 1929.
53Ib1d., January 1a, 1929.

231
attacks adds a third.dimension as to why he would stay; he
was not the kind of man to quit under fire.5h Having
battled the legislative branch before and won, to quit would
be to retire in disgrace, to admit by his absence that the
charges were true. The Mellon tradition was to fear no one
and to see a thing through until the end. In business he
had bested Standard Oil, in politics he had held back the
Democratic Party for two years, and now he would fight for
his right to sit in the Cabinet.

That the Insurgents intended on blocking Mellon's
confirmation placed the President-elect in an awkward posi-
tion. On one hand, to begin his administration embroiled
with Congress would not bode well for future relations and
the success of his legislative pregram. On the other, he
did not want to throw a capable man to the wolves, a.man
whom the business community considered something more than
a Secretary of the Treasury. Fortunately a third alternative
presented itself which enabled.him to avoid a confrontation.

The President-elect chose to keep the Pittsburgh banker
in the Cabinet, but he would not submit him for confirmation;
Mellon would continue in office as a holdover as he had in
l92h when Coolidge began.his elected term, Secretary of
Labor James J. Davis would also be maintained in identical
fashion, thus negating the argument that the Treasury chief

was receiving preferential treatment. Senator McKellar

—

ShMurphy, "Tale of a Tilt,” h76.

232
demanded an investigation of the maneuver and the Judiciary
Committee, chaired by the Insurgent Republican George
Norris, reported that it was within the law and tradition.
Only the Postmaster General need be re-confirzmed.55 For
the time being, Mellon was safe.

Two weeks after assuming office, Hoover took another
step to avoid a.Mellon-Congress embroglio. By executive
order, all refunds, credits, and abatements in excess of
$20,000 were to be made public, thus appeasing McKellar and
his adherents. In his Annual Report for 1929, the Secretary
claimed credit for this move, pointing out that revealing
only the final figure was in keeping with Treasury policy of
protecting the privacy of returns.56 By doing so, he averted
any possibility of full disclosure of tax returns or trans-
fering the control over refunds to the Board of Tax Appeals,
a move that he had argued earlier would double the Board's
work, cause a three year delay, and cost the government

$13% million per year in interest.57

 

55Over the objections of Norris, McKellar also requested
that the committee determine if Mellon was eligible to hold
office within the dictates of the 1789 law preventing the
Secretary of Treasury from engaging in ”trade or commerce."
Senator Norris objected, saying that such an investigation
was the prerogative of the House and might negate any future
impeachment proceedings should the Senate rule favorably as
it did. Eligibilit of the Honorable Andrew W. Mellon,
Secretar of the Treasur , Senate Report 7, Part I, 71st
Congress, lst Session, $929, pp. 1-3 and New York Times,
March 6 and May 5, 1929.

 

S6Annual Re art, 1929, 287-89 and "Another Hoover Sur-
prise,” Literary_DIgest, March 30, 1929. p. 8.

57New York Tmmes, January 23, 1929.

233

With Hoover's help, Mellon was to evade the snares of
Congress. But when would a new issue, a new fight crop up?
It was becoming increasingly clear that the President's
supposed kingmaker was something of an albatross. Perhaps
if Mellon left, after all no one expected him to remain in
the administration very long, things would be better. The
papers were rife with rumors regularly that the Treasury
chief would resign, with Mills and Los Angeles banker Henry
Robinson mentioned as possible successors. Though he
avoided clashes on potentially volatile issues and delegated
more responsibility in public affairs to his Under-Secretary,
Mellon gave no indication that he intended on leaving,
regularly denying the resignation rumors. So long as the
situation remained calm, the President seemed content to
keep him in the Cabinet, but to rely more on Mills for ad-
vice and consultation. So long as his positive qualities
balanced his negative attributes, Mellon would remain in the
front office; but if the scales were tripped, the general
feeling was that he would be replaced.

From.March until October, he avoided the public eye as
much as possible and Congress turned its attention to less
controversial issues, from.the Secretary's standpoint, like
the tariff. Beneath the surface, he was moderately active
with.reference to the stock market whose speculative growth
was becoming a matter of concern in Washington and else-
where. He spent a considerable part of early 1929 partici-
pating with the Federal Reserve Board in its attempt to

23h
combat the bull market.

General apprehension about the soundness of Wall Street
had formed early in 1928. No one cried fire, but many said
they smelled smoke. The Federal Reserve had responded by
reversing the low discount rate, internationalist policy of
Mellon and Governor Benjamin Strong of the New York bank.
Strong's prolonged illness and eventual death in October
robbed the Chairman of his partner and the driving force
behind the Board. To stem.the speculative mania, the Re-
serve Board sanctioned three separate %% rate increases in
the first six months of 1928, ending at a 5% rate, the
highest since 1921. But before the increases were accepted
by Washington, the banks had to reduce their buying rates
on acceptance and sell government bonds so as not to overly
disturb the market.58 Rates were not raised after June,
1928 for fear of disturbing the agricultural sector during
harvest and rekindling the criticisms of the Harding years
about high rates causing depressions in farmareas.59
Tightening of the credit structure had minimal success;
speculation continued at a ever increasing rate. The in-
ternational economic situation had grown tense as gold

began returning to the United States for the first time in

 

58Lester V. Chandler, Benjamin Strong, Central Banker
(Washington, D.C.: Brookings nstitution, I958), p. 229
and A. Jerome Clifford, The Independence of_§he Federal
Reserve S stem.(Philade1phia: University of Pennsylvania
Press, 9 , p. 123.

SgHarold H. Reed, The Federal Reserve Policy, 1921-20
(New York: McGraw Hill,‘19307, pp. 133-3u.

235
three years, further feeding the voracious appetite of
speculation.

Chairman Mellon had given his blessing to these in-
creases, but generally was not too woried about the domes-
tic situation. In February, 1928, he wrote:

As a result (of reinvesting surplus earnings),

there has been built up in this country a eco-

nomic and industrial organization under which

we have achieved not only a vast amount of

wealth but a distribution of it that is unprece-

dented, and a standard of living that is the

best justificatign, if any is needed, of the

American system, 0
There was nothing to worry about so long as Americans be-
lieved that "work is the only honorable occupation and
that life has more to offer than merely the spending of
money on selfish enjoyment."61 It was a glowing endorse-
ment of capitalism and the Protestant work ethic, and no
doubt reassuring to the market operators who believed
themselves to be participating in the American dream, When
a candidate, Hoover had expressed some apprehension about
Reserve Board policy and its ability to cope with the prob-
lem, but Mellon ”seemed to dismiss his colleagues inter-

mittent concern as much ado about nothing."62

With.the election of Hoover, the market took off to

 

60Andrew W. Mellon, 'Our's Are the Faults of Youth,”
Worlds Work, February, 1928, p. 36h.

élIbid.

62Arthur Schlesinger, The Crisis of the Old Order
(Boston: Houghton Mifflin Co., I957}, p. 70.

236
even greater heights and appeared to many to be spiraling
out of control.63 When the traditional %% increase failed,
Wall Street having easily adjusted with each jump, the
Board initiated a new approach. Rembering that a 7% rate
had precipated a recession in 1919-1920, cost Governor
W.P.G. Harding his job, and led to several Congressional
investigations, and that increases beyond 5% might paralyze
legitimate business activity while being ignored by a spec-
ulator who might expect a 100% profit in a popular stock,
it decided on a tactic of ”direct pressure” or ”moral
suasion.” In early February, 1929, the Board urged member
banks to refuse discount privileges in instances where the
the funds would be used for speculative purposes. The Chair-
man objected to the policy as an over-extension of the
powers and prerogatives of the Board, and failed to attend
the deciding meeting. He had voiced his distaste in 1926
when Adolph Miller first suggested it and would shmply let
his past actions define his position.6h The Board did not

 

63.. .0
Hoover Bull Market Literary Digest November 2h
1928, pp. 6h-67. ’ ’ ’

6"‘Hamlin MSS, Index-Di est, Vol. 11, p. 138, and Vol.
15, p. lhh. Adolph er, e only trained economist on

the Board, was a close friend of Hoover. ,Mellon believed

in the mid-20s that the two were conspiring to embarrass the
Federal Reserve Board by criticizing its opennmarket poli-
cies. Vol. 11, p. 69. In 1928, Miller testified before a
Congressional Committee that the Secretary of the Treasury
should be removed from the Board, an opinion that Mellon
himself had put forward in 1921 before recognizing the power
and influence that accompanied the position. Vol. 1h,

p. 166-67. Neither move endeared Miller to Mellon and no
doubt created problems in 1929 when the Board decided to
follow Miller's suggestion to use ”moral suasion.”

237
usually ignore its chief, but in this case, the majority
was decided that something had to be done and were unwill-
ing to sit idly by as Mellon offered no alternative.

Word leaked to the press that the Chairman was not in
harmony with the Board's latest actions. What the Reserve
system.might do beyond moral suasion combined with Mellon's
apparent opposition caused some consternation on Wall
Street and forced the chairman by early March to issue a
statement to disquiet rumors that the Treasury and Reserve
Board were not working in tandem.65 Nevertheless, the Sec-
retary's actions had at least partially undermined the good
intentions of the Board in choking speculators by "direct
pressure'I or "moral suasion.” The failure of the New Yerk
bank to pass along the Board's directive to its customers
further mitigated the value of the new policy.

Though Mellon had reacted poorly in not compromising
with his Board and lacked a viable alternative solution, he
was apprehensive about the volwme of speculative activity
and sought in his own way to slow the market. Replying to
reporters questions in early March about the state of the
market, he said:

For prudent investors I would say, if making a

suggestion, that now is the time to buy good
bonds. This does not mean that many stocks

 

651nm” Vol. 15, 11,3 and New York Times, March 12,
1929. -

238

are not sound investments. Some gge, however,
too high a price to be good buys.

Typical of his pronouncements, it was subtle, but pregnant
with meaning for anyone who cared to analyze it. Few ap-
parently did for stocks rose even higher, and having gotten
over the scare of "direct pressure,” investors ignored all
subsequent warnings until it was too late.

Recent scholarship indicates that coincident with the
"direct pressure-~moral suasion" tactic, the stock market
began its downward thrust.67 At the time, however, it
appeared that the market was still churning upwards and
Mellon and the Board stood back and watched in some dismay
for several months. The New Yerk bank, under Strong's
former assistant George Harrison, ignored the ”direct
pressure”' policy3failing to pass the Board memorandum.on
to member banks, and agitated for more increases in the
discount rate instead.68 Washington rejected their demands.
A few weeks later, the Chairman lamented that rates had not
been increased.much earlier and from the perspective of
hindsight, began to believe that his low rate, interna-
tionalist policy had been ill-chosen to meet the demands
of the domestic situation. Yet he rationalized his way out

of the quandary by confessing that the discount rate was

 

66Literarypigest, March 30, 1929, p. 65.

67Lawrence Fisher, "Some New Stock Market Indexes,”
Journal of Business, Supplement Issue, January, 1966, p.
205.

68Clifford, Reserve System, 123.

239

an inadequate weapon to curb speculation, and even an in-
crease now to 9% would not cure the problem.69

In defense of his uncle, W.L. Mellon wrote later that
the Chairman, Governor Ray Young, and Vice-Governor Edmund
Platt, the three powers of the Board, led a spirited min-
ority demanding increases in the discount rates. They sug-
gested ”ratchet like,“ point by point raises to 10% or
12% if necessary.8 As the only bankers on the Board, Young
and Mellon supposedly recognized the seriousness of the
situation better than others who were “disposed to make
bank credit easy."7o Such an about face for the Secretary,
the nun who had first advocated rate reductions in 1921 and
who had collaborated with Benjamin Strong to maintain low
rates for several years, is hard to believe.71 The exper-
ience of W.P.G. Harding and the Board in 1919-1920 when it
raised rates to 7% and the storm that it caused was too
vivid for anyone to countenance such an idea, not to men-
tion that a 10% or 12% rate would surely have caused a
panic, something the government and its agents were loathe
to see happen.

The sum.of the above was that Andrew Mellon failed to

exert a leadership role when the Reserve Board was confronted

1.—

69Hamlin MSS, Index-Digest, Vol. 16, 180-81.
7oMellon, Mellon's Sons, pp. h69-70.
71Chandler, Stron , pp. l7h-75.

2&0

with a near crisis situation. His objections to both of
the palatives put forward and.his vacillating opinion
undermined its effectiveness. This failure to lead now,
as so often was the case in the past and would be in the
future, added another argwment for the removal of the
Secretary of the Treasury from the Board, something that
had often been discussed and finally materialized in the
Banking Act of 1935.

While Mellon vacillated and did little in the battle
against speculation, neither did he participate in sthnu-
lating the bull market. A well circulated article of the
period accused.him.of conspiring with President Coolidge
to shore up the sagging market rather than allow it to

naturally flounder of its own weight.72 The theory was
that the two made optimistic statements every time it gave

signs of cracking, thus postponing the inevitable and mak-
ing the crash more severe than it would have been had it
come earlier.

The available evidence will not support that conten-
tion. In his conspiracy theory, R.W. Robey pointed to three
statements by Mellon in a six week period of early 1928 to
illustrate his argument. 0f the third occasion, in mid-
March, Robey wrote: ”Strangely enough Mr. Mellon, who

 

72R.W. Robey, "Capeadores in Wall Street,” Atlantic
Monthly, September, 1928, pp. 388-97. James TrusIow Adams
supported this theme in his post-crash article "Presiden-
67‘1 Prosperity,” Harper's Magazine, August, 1930, pp. 257-

2&1

happened to be leaving for a visit to Europe at 1355 this
time, made his departure an occasion for expressing his
optimism.toward business conditions and stockqmarket spec-
ulation.73 (emphasis mine) Not only was the Secretary
gearing his statements to the market, he was supposedly
willing to adjust his travel schedule, or perhaps make a
trip to Europe, so as to be able to offer optimistic dock-
side pronouncements. The article closed with an innunendo
to the effect of need we say more and a journalistic hedge.
After pointing to Mellon and Coolidge's statements, and
arguing that they buoyed.the market, Robey concluded that
”it is still another question as to whether or not the in-
fluence of these two men was deliberate.'7h

The argument is found wanting out of simple logic.
If Mellon could manipulate the market, if Wall Street
operators barked to his encouraging words, why did he have
to speak out in two week intervals? Should not his state-
ments had more than a fortnight's effect? The failure of
his bond statement in March to stem inflation, conveniently
omitted by Robey, causes one to wonder how much attention
speculators were paying to anyone.

An.examination of the newspapers and periodicals of
the Coolidge-Hoover bull mmrket period indicates that Mellon

was as sparing with his words as ever. To find other

 

73Robey, ”Capeadores," 392.
7th1d., 397.

2&2

examples of ”market manipulation” besides the three cited
by Robey is a difficult process. Looking at the question
shortly after the Secretary left office, Albert w. Atwood
drew the same conclusion as this writer. ”I find no evi-
dence,” Atwood wrote, “that he gave out other statements
than the occasional routine releases concerning current
business conditions and outlook."75 This is not to deny
that necessary announcements were timed for their most
propitious effect or that the Secretary could.have manipu-
lated the market should he so desire. However, the combina-
tion of his laissez-faire economic philosophy, his conserva-
tive investment attitude, his personal shyness, and the
simple fact that the speculators did not need stimulation
prohibited.him from.playing God. Perhaps Coolidge and
Hoover wanted to act as deities, and an examination of the
Secretary of Commerce's optimistic public statements is
revealing in this respect, but the Pittsburgh banker did
not. The Secretary's comments were terse, to the point,
subject to interpretation, and lacking in the enthusiams
that his colleagues so often emitted.

The Robey article and the Chairman's role in Reserve
Board activities, however, led to another problem, If
Mellon was aware that Wall Street was on the verge of col-

lapse, why did he not sound a warning? Two elements were

 

75Albert W. Atwood, "Mr. Mellon,“ Saturday Evening
Post, May 7, 1932, p. 103.

2113
involved. The first was his belief in the business cycle,
and what went up, had to come down. He gave no indication
of agreeing with Irving Fisher and others that the market,
that the economy in general had reached a permanently high
plateau. Yet he could not cry out in alarm for that might
lead to a panic. In his fumbling sort of way, he was try-
ing to prevent, trying to mitigate, not postpone, a col-
lapse. No government official then or now has ever pre-
dicted catastrope for the future. The government's duty is
to do all that it can to insure prosperity, to work its
hardest to keep the business cycle on an upward swing. The
(mass psychology of the market place is strange, take for
example the reaction of Wall Street to a White House an-
nouncoment that the President has a cold. For Mellon to
have acted alarmist might very easily have been lethal for
the economy and a violation of a traditional mmxim.of gov-
ernment operation.

The second element was the Secretary's March warning
about buying bonds, a subtle way of telling the speculators
that the end was in sight. That the Mellon policy was to
keep your money invested in productive enterprises and that
his estate at his death in 1937, valued at $37.million,
contained about $8 million in tax-exempt government bonds
and an unannounced sum.of corporate bonds indicates that

he was probably following his own advice.76 Few others did.

 

7§Zittsburgh Press, August 31, 1938.

21m
In terms of the world situation, from 1921 to 1929,

he could have done more than he did to prevent the crash

or at least cushion the blow, but he did not attempt to
create artifical prosperity with euphemistic utterances or
simply stand back and allow prosperity to topple. He tried
the middle road, but his efforts were too late and too
little.

With the exception of the behind the scenes activities
at the Reserve Board, pro-crash 1929 was a rather lacka-
daisical period for Mellon. The fiscal year ended with a
$193 million surplus, the Treasury estimate only $30
million short this time, and Hoover threw his support to
the‘Hashington beautification project. The surplus ac-
celerated discussion of tax reduction, the debt level fell
to $17.6 billion, and the President called for a Congres-
sinal committee to study the mechanics of prohibition en-
forcement and to consider transferral to the Justice Depart-
ment.

is the new administration gradually absorbed.Hellon's
goals and programs, particularly the big three of taxation,
debt reduction, and foreign debt refunding which ”became
regarded almost as personal achievements,” reports that he
would leave the Cabinet grow in intensity.77 In response
to one inquiry as to whether he planned to resign, he

facetiously quoted Benjamin Franklin. ”I an deficient, I

 

77Outlook, October, 1929, p. 297.

2&5

am afraid, in the Christian virtue of resignation."78

On August 8, 1929, the Federal Reserve Board finally
yielded to the new York bank and sanctioned an increase in
the discount rate to 6%. The market crashed. In the next
few weeks the market gyrated crazily and fears that it
was going through it's death throes mounted. In a last
ditch effort to restore confidence, the White House as-
serted.that Mellon would unquestionably be at the Treasury
at least until March, 1933.79 Newspapers headlined the
story and morale on‘Wall Street was boosted with the
proclmmation that the patriarch of prosperity would not de-
sert in the time of need. Within two weeks, the Coolidge-
Hoover bull market was history. The symbol of prosperity,
the maker of Presidents, the ”greatest Secretary of the
Treasury since Alexander Hamilton” was the albatross in
the wine dark sea of depression. In the interregnum.he
appeared to be Hoover's albatross; with the crash he be-

longed to everybody.

78New York Times, May 22, 1929.
79Ibid., October 8, 1929.

CHAPTER VII
CRISIS, CONFUSION, COLLAPSE

History has dutifully recorded that the bull market of
the Twenties disintegrated in October, 1929, ushering in a
decade of personal suffering and economic depression. The
last ten days of that month.have been indelibly etched in
the memory of man as the end of an era, one of the great
turning points of American history. That Judgment has been
drawn by historians with the assistance of the professions
most valuable tool, the perspective gained by the passage
of time, hindsight, in the vernacular.

The real problem confronting man is to discern the
crucial moments when they occur, not swmetime afterward.
In some instances, like the German invasion in 1939, it is
a fairly easy task but other cases, and here the stock mar-
ket crash serves as a useful example, are more difficult to
determine. When the bull market went through its death
throes, most accepted it as the inevitable functioning of
the economic cycle, with a few arguing that it had been
delayed a year or more for political reasons. Crisis had
come to Wall Street before and would come again. No one

perceived that the ten fat years of the Twenties would be

2M?

2h?
followed by the ten lean years of the Thirties, or that the
New York catastrophe would lead to nationwide bankruptcy.
Time, time to gain a perspective of events, would have to
pass before peOple, and‘Washington politicians in particular,
would grasp the magnitude of the situation.

Secretary of'the Treasury Mellon's initial response to
the crash was one more of expectation than surprise. His
Reserve Board colleague, Charles S. Hamlin, reported that
the Secretary was depressed at the break, a logical reaction
for anyone in a responsible position, but his belief in
natural economic laws and the crazed state of Wall Street
would indicate that he was not shocked.1 He was a man who
believed in industrial barometers and the reduction in orders
at his Carborundum.Corporation, which.he interpreted to mean
that the collapse was no temporary thing, must have also
warned him.over the summer months that the end was in sight,
given the fact that general industrial operations were being
curtailed long before October.2

In the immediate post-crash period, he withdrew, sur-
rounding himself with a wall of silence while his critics
attempted to lay blame at his door. Nation magazine, for
example, rushed to the press an article entitled, ”The Man
Who Did It” and Senator James a. Robinson (D-er.), Senate
minority leader and Al Smith's running mate, rose up to

lcharles s. Hamlin ass, Index-Di est, Manuscript
1Division, Library of Congress:_V5IT-I§:_B} 183.

2WilliamLarimer Mellon, Judge Mellon's Sons (n.p.,
19h8) , pe h710

2&8
chastise the Republicans, Mellon in particular, for having
delayed recession in 1928 for political reasons and thus
having caused the crash.3 While most everyone in and out
of government offered explanations and palatives for the
cataclysm, the Treasury chief sought refuge. Having accepted
praise for prosperity, he must bear the burden of depression.
He was no better prepared to cope with the situation than
anyone else and would continue to vacillate in his response
as he had had in his preparations.

The federal establishment reacted to the crash in two
ways and Mellon participated in both decisions. The first
was a Halloween Day announcement by the Reserve Board that
the new Yerk discount rate was being reduced 1% to its pre-
August, 1929 level of 5%. Like many rate changes in the
Twenties, it followed on the heels of a reduction by the
Bank of England. The second was Mellon's confirmation that
taxes would be lowered, recommending an across the board out
of 1% in both personal and corporate income taxes.u

These two moves have been interpreted as methods of
credit relaxation on the one hand and stimulation of public
expenditure on the other. The Reserve Board decision was
intended to expand credit and that policy was extended
until the rate sunk to 2%, thus preventing a credit panic
and drawing some criticism that the quick response would

 

3"The Man Who Did It,” nation, November 13, 1929,
pp. 539-h0 and New Yerk Times, October 31, 1929.

hNew York Times, October 31 and Nbvember 1h, 1929

2&9

rekindle speculation.5 The tax program, however, was, at
least in Mellon's mind, offered for different reasons.
When he explained the proposed cut, he described it as part
of a program.that had been in the planning stages for
months, and that it would.have been urged no matter what
the market condition was. If the Department was apprehen-
sive about the future, he said, it would not have made such
a suggestion. The decision was predicated on anticipated
surplus in the government coffers, not on a desire to stimp
ulate public expenditure at the risk of a deficit. Though
perhaps trying to bolster confidence by exhibiting his
faith in the ability of the economy to come back, he refused
to admit that the reduction was a product of a White House
decision made in the face of market conditions.6 His stance
was somowhat contradictory or vacillating, seeming to buoy
confidence with one phrase and deny that that was his in-
tention with the next.

Unlike previous revenue proposals, the 1% slice was
to be effective for one year, not permanently. The Treasury
would have preferred a grant of discretionary power to
initiate minor revisions in the tax rates as circumstances

dictated in a manner similar to Presidential prerogatives

 

sHarold H. Reed, Federal Reserve Polic 1921- 0 (New
York: HOGrafl-HIII, Inc., 30 g p. e

§New‘YOrk Times, November 1h and 15, 1929.

250
extended in the 1930 tariff law.7 It was a bold and pro-
gressive proposition from which Congress recoiled.

The new Mellon Plan was greeted warmly by the Damo-
crats as House minority leader John Nance Garner, who had
refused cooperation on the last revenue act and a year ago
was complaining of mismanagement of tax refunds, declared
his support. The Insurgents, recently dubbed the "Sons of
the Wild Jackasses” by Senator George H. Moses of Massachu-
setts (the "Sage of Concord" they retorted), preferred a
more aggressive program of estate and surtax revision, but
their hopes for significant alterations were set aside by
a coalition of Regular Republicans and Democrats who pushed
the bill through Congress in less than a month. The speed
of the legislature in.this extraordinary situation‘helped'
sap the strength of the Treasury argument for discretion-
ary powers to meet unusual circumstances. The decade had
opened with the major parties at loggerheads over taxation
and it closed with harmony, only the Insurgents continued
a consistent pattern.

While Ways and Means Chairman Willis Hawley and minor-
ity leader Jack Garner shepherded the revenue bill through
the legislative establishment, the White House added two
new weapons to its arsenal in the fight against recession.
Both ideas, conferences of business leaders to renew confi-

dence and stimulate production and increased federal

‘

7 nual Re art of the Secretar of the Treasur ,
1929, p. 25 and New York TIE—es, November I3, I959.

251

construction, have been interpreted as wise moves by the
administration; but as was the case with tax reduction,
Mellon was out of step with Hoover and others who saw a
need to nip the problem before it became too severe.

Harvard economist John Kenneth Galbraith has lauded
the President for calling his no-business business meetings.
Emphasizing the psychological aspect of the crash and its
aftermath, Galbraith pointed to the value of these meetings
in reassuring the public. is a practical expression of
Hoover's laissez-faire philosophy, they enabled the chief
executive to do something without cosmitting the federal
government to direct involvement.8

The Treasury chief disagreed with his superior's de-
cision to rally the leaders of American business in Washing-
ton. While the President was marshalling the forces of big
business for a concerted effort and charging that ”any lack
of confidence in the economic future or the basic strength
of business in the United States is foolish,” Mellon was
thinking that such a program was premature and that the
public's response would more likely be fear rather than
reassurance.9 The government should hold this move in
reserve, he thought, for a time when it would be more val-

uable. When the President made it clear that he was going

 

8John Kenneth Galbraith, The Great Crash (Boston:
Houghton, Mifflin Co., 1955): Pp. IKE-E6.

 

9Mellon, Mellon's Sons, pp. 1470-71 and New York Times,
November 16, 1929. '

 

 

 

252
ahead with the meetings, his Cabinet, Mellon included,
participated as directed. The ultimate success of these-
meetings was minimal, and had the Treasury head, the chief
steward of the nation's finances and high priest of business,
put his heart into the program.instead of simply going
through the motions, they may have achieved more. Lack of
enthusiamm'by a key participant could and probably did
undermine the psychological effect of the meetings on those
present. Fortunately, the public was unaware of the Sec-
retary's reluctance.

The Pittsburgh banker's nephew and political arm.in
Pennsylvania, William Larimer Mellon, has written that
”from.the beginning of the depression, Hoover tended to
ignore A.W.'s advice." This, he said, disappointed rather
than irked the Secretary, and that he grew accustmmed to
having his advice spurned. Net until the failure of the
Credit-Anstalt Bank in Vienna in May 1931, would the
President be concerned to have his counsel.10

On the eve of the first national conference, the Tree-
sury announced a request for an additional $175 million for
public construction over the next decade.11 Since 1926,
Congress had authorized $2h8 million for the building pro-
gram.to be spent at an annual rate of 3&5 million, $10
million in Washington and $35 million in the rest of the

 

1OMellon, Mellon's Sons, pp. h70-72.
11New Ycrk Times, November 19, 1929.

253

country. Like other federal plans, this one was greeted
enthusiastically by people who saw it as absorbing unom-
plomment, stimulating the economy, and increasing confidence.

Contained within this public works program was a prob-
lom of semantics that has plagued observers ever since. The
three key words are request, authorization, appropriation.
The first two are meaningless until the Congress appropri-
ates. As of 1929, the legislature may have authorized $2h8
million, an impressive figure, but it had only appropriated
$135 million or about half. Compounding matters even
. further was the question of how much was actually spent.
In fiscal 1929, $6 million of the $35 million to be used
beyond Washington was not expended. Throughout the Hoover
years, many people were misled or jumped to premature con-
clusions by announcements concerning public works that
spoke of requests or authorizations instead of appropria-
tion.12

Treasury intentions with reference to public construc-
tion were probably quite different from those who greeted
the program.enthusiastically. In the economic downturn of
1921, the Secretary reacted rather coldly to the plans of
President Harding and Secretary of Commerce for using public

funds to provide jobs since such a proposition would be

 

128ee Ruby A. Black, ”Hoover's Public Buildings
IBluff," Nation, June 17, 1931, pp. 656-58 for analysis of
the above problems as will as the effect of public con-
struction to absorb unemployment.

 

 

 

25h
disruptive to his budget.13 If the reason was to absorb
unemployment, his response in 1929 would probably have
been the same. The problems of the unemployed were secon-
dary in his mind to the development of the nation's capital
and the economy brought by owning rather than leasing
facilities. A week after the public construction announce-
ment, Mellon spoke at an award presentation for Elihu Root
at the National Academy of Design, praising the former
Secretary of War for his help in rescuing theiL'Enfant Plan
from oblivion and reiterating his dedication to beautifying
the nation's capital.1h Most likely, his construction pro-
gram was similar to his approach to tax reduction; some
thing that had been planned for quite a while and brought
forward without regard to the crash.

A few months later, Mellon asked Congress to hasten
its approval of appropriations for public buildings be-
cause the Treasury was ”accelerating its activities in line
with President Hoover's policy of increased construction as
a means of relieving unemployment.'15 is he said, however,

it was President Hoover's policy, not his; he was only doing

 

13Mellon to Harding, February 18,1922, Labor (1918-
1931) file, Official Corres ondence of the Secretar of the
Treasur , Record Group 55, fiationaI Irchives, Box 85.

11”New Ybrk Times, November 27, 1929 and Development of

the United States Ca ital (Washington, D. 0.: Govt. Print-
Ing Office, 19305.

15Ibid., March 23, 1930.

 

255
what he was being told.16 He wanted his Federal Triangle
and the White House desired an unemployment program; it was
a marriage of convenience, not conviction.

The New Year began with the traditional optimistic
statements of everyone in the cabinet including Mellon. In-
stead of having to quote from his épnual Report as was cus-
tomary, this year the newspapers were provided with a.fresh
release from.the Treasury while the Secretary vacationed in
the Bahamas .

I see nothing, however, in the present situation
that is either menacing or warrants pessimimm.
. . . I have every confidence that there will be

a revival of activity in the Spring and that dur-
ing the year the country will make steady progress.17

This statement has been used to illustrate that Mellon had
no idea of the gravity of the situation. What could he
have said? ‘Would it have been better to give the public
the truth, that circumstances were critical, that the econ-
omy would probably worsen before it began to right itself?
The problem.was the same as before the crash. What is the
duty of a government official who seeks to maintain a
steady flow in the economy?

This writer has argued that Secretary of the Treasury
Mellon was out of step with.hoth his contemporaries and
later analysts in his responses to the cures that were

offered to heal the wounded economy. This is not to say

 

16Mellon to Hoover, November 21, 1929, the President
file, Official Correspondence, Box 90.

17New York Times, January 1, 1930.

256
that he did not know what he was doing, that his attitudes
and ideas were not grounded in an intelligent base. He may
have lacked a full comprehension of the realities of a de-
pression in a highly urbanized, industrial economy of the
Twentieth century, but he was not ignorant either. His
New Year's statement, like his warning to buy bonds the
previous March, was his way of doctoring problems without
direct confrontation. He was trying to restore confidence
with an optimistic statement presented at a.10gical moment,
not delude the public. Unfortunately, his.medicine was not
strong enough to moot the needs of the problem,

That Mellon was acting from a base point in objecting
to Hoover's remedies instead of groping in the dark. un-
knowingly made him.the worst possible Secretary of the
Treasury the nation could.have had during an economic down-
turn. His depression philosophy was deflationary, let
things run their course until the economic body was purged
of its poisons. He had used this approach earlier in the
decade when the agricultural sector called for the McNary-
Haugen export scheme, telling the farmers that they had to
go through the painful, but necessary process of deflation
until the inflated wartimo values reached their true level.
This, he said, was what the business community had done
from 1919 to 1921.18

writing in the 1950s, ex-President Hoover remembered

18Mellon to James Witherow Jul 8, 1926, Tariff File,
Official Correspondence, Box 128.

25v
Mellon as the head of the ”leave it alone liquidationist
school.” The Secretary's formula, he wrote, was, 'Liquidate
labor, liquidate stocks, liquidate the farmers, liquidate
real estate."19 These are pretty harsh words and apparently
part of Hoover's attempt to rebuild his own image, though
there was some material in his background that might in-
dicate that he would advocate liquidation.

His first business venture had ended by liquidating in
the face of depression. Shortly after he and his brother
Richard opened their lumber and real estate business, the
Panic of 1873 struck. The brothers immediately sold their
holdings and returned to Pittsburgh to help at the family
bank. Their father beamed with pride at this shrewd
maneuver, selling out with a tidy profit before everything
collapsed, for it proved to him.that they knew how to
operate. The business had been designed as a trial run by
Judge Mellon and they exceeded.his expectations.20

The Mellon's particularly the family patriarch Judge
Thomas Mellon, were reputed to have taken advantage of others
who voluntarily or involuntarily liquidated during depres-
sions to build the family fortune. After the Panic of 1837,
Thomas Mellon, then prcthonotary (county clerk) inAllegheny
County, was to have used the information that passed through

‘

19Herbert Hoover, The Memoirs of Herbert Hoover, Vol.
III, The Great Depression (New York: The MaomIIIan Co.,
1952), p. 35.

2°Thomas Mellon, Thomas Mellon and his Times (n.p.,
1885), pp. hO6-h07 and Mellon, MeIIon's Sons, pp. 31-32.

256
his office to acquire considerable real estate holdings
for very little.21 Known to drive a hard bargain in all
of their loans, the banking house of T. Mellon and Sons
supposedly added to their coffers with numerous foreclosures
during the Panic of 1873.22 Hoover quoted.his Secretary as
saying after the break in 1929: "There is a lot of real
estate lying around the United States which.does not know
who owns it."23 If one accepts Harvey O'Connor, the con-
clusion to be drawn in this last instance was that muoh of
that real estate was destined to wind up in the hands of
the Mellons. Whether or not it did is not known.

Beyond the recollections of a defensive President and
the fact that Andrew Mellon had liquidated in 1873, there
is no evidence, however, that he was a liquidationist after
1929. Although he believed that the business community had
to undergo the painful process of readjustment, that did
not necessitate liquidation. The Secretary himself, for
example, did not repeat his liquidationist proceedings of
a half century earlier. His personal investments were far
too numerous and complex to countenance wholesale liquida-
tion without incurring tremendous losses. He did take ad-
vantage of depressed stock prices to continue his process

of divesting himself to his children, selling selected

21Harvey O'Connor, Mellon's Millions A Bio ra h of
agFortune (New Ybrk: Blue RIBEcn Books, Inc., 1533;, p. 9.

221bid., pp.'32-3h.

23Hoover, Memoirs, p. 30.

259
stocks to two holding companies established for his heirs,
Coalesced Company and Alsoalot, and writing off the losses
against his income taxes.2h The intent, however, was not
to make himself liquid, but to use a prepitious set of cir-
cumstances to transfer the reins of his empire. Had he
been a strict liquidationist, he would hardly have sold
depressed stocks to his children. While urging that the
government "leave it (the economy) alone,” that the federal
establishment adhere to a strict laissez-faire approach to
the depression, he never went on record as encouraging
anyone to liquidate. Were he to advise the investing
public on.how to respond to the depression, his personal
activities indicate that he would be likely to urge a
“weather the storm? approach.

When the crash came in 1929, Mellon observed in broad
terms that history was repeating itself, that the situation
was similar to 1873.25 In an election eve address in 1930,
he said that depressions were caused by uncontrollable I
forces and that the underlying problem.was overexpansion,
overproduction of certain commodities, not the stock market.
”We have not yet learned how to avoid industrial depres-

sions,” and the country must go through I'a painful process

 

 

21"Official Re ort of the Proceedings of the U.S. Board
of Tax AppeaIs, A.a. MeIIon v Commission of Internal
Revenue Res endent, pp. h417-I8 and New York TIEEs,
AprII 5, 1935.

h 25Hoover, Memoirs, p. 30 and.Mellon, Mellon's Sons,
p. 71.

 

 

260
of readjustment." The Secretary also saw international
implications, concluding that "depressions have been, al-
most without exception, the result of world conditions,”
. . . "and the voter could not blame any group of men or
party for something that could not have been prevented
. . . by any action that might have been taken.” Though
placing blame on international conditions for the downturn,
he believed that reversing the cycle would be easier for
America because the country was almost completely self-
contained, consuming 90% of what it produced.26 He appar-
ently did not see the failure of his logic.

Before the American Bankers Association in May, 1931,
Secretary Mellon expanded his philosophy. Again describ-
ing the readjustment process as inevitable and noting that
this readjustment was worse than others because it came so
close on the heels of a war, he concluded that there was
nothing fundamentally wrong with the system. It was ”no
time to undertake drastic experiments which.may conceivably
result in breaking down the standard of living to which.we
have become accustomed." Solutions must come from individual
initiative, not ”by surrendering the management of business
and industry to government or to any board or group of men.”
He went on to make his analogy with the Panic of 1873,
describing both as products of over-rapid industrial ex-

pansion after a war. His conclusion was an exposition on

 

26New York Times, October 30, 1930.

261
the ebb and flow theory of progress, and though.he had no
idea when this depression would end, he said that he was
certain that it would.27 In the meantime, mankind must
persevere, the individual must rely on community help, and
the government must remain a disinterested observer.

This was a hard philosophy, but not intended to be
harshi Mellon, his family, and his companies were frequent
contributors to fund raising campaigns to provide work for
the unemployed in the Pittsburgh area. The Secretary
praised the Pittsburgh Plan of public subscriptions for
public works, that both employee and employer should con-
tribute to a fund to provide continued.work for those
employed and to help those who were out of work.28 There
is no evidence of a lack of sensitivity. Rather, we have
a nineteenth century man with the nineteenth century phil-
osophy of individualism facing a twentieth.century situa-
tion. This writer agrees with Hoover, that Mellon did not
realise that in the sixty years since the Panic of 1873,
the economy had changed, it had matured, became more in-
dustrialized. Whereas in 1873, 75% of population was en-
gaged in agriculture and only 25% in industry, the figures
had nearly reversed themselves by 1929. The consequence

was that industrial unemployment was a.much.more staggering

 

27Ibid., May 6, 1931.
28Ibid., November 9, 1931.

262
phenomenon than it had been in his first depression exper-
ience.29 The new predicament called for someone that Mellon
was not, nor could hope to be. Hoover and his approach was
an improvement, but it would not be until 1932 with the
election of a man with twentieth.century concepts and with
his predecessor's mistakes behind him.that the federal
government would take steps to provide a realistic solution.
1929 called for intervention, not observation.

Unfortunately for the country, more than his economic
philosophy impeded Mellon's handling of the depression. As
was the case throughout the Twenties, the first session of
each Congress, the long session, demanded his attention.

The inhabitants of Capitol Hill were debating a great many
large issues and seemed as oblivious to the economic tragedy
around them.as anyone else. They had pressing concerns of
a.momentious nature that demanded their attention and kept
them from observing the sufferings of so many. It was a
rare legislator in 1930 who called for more aid to the
masses.

The Seventy-first Congress began with a flourish over
prohibition. After a decade of inthmidation, the dry or-
ganizations were out of favor with the Congress which was
contemplating alterations in enforcement policy. President
Hoover's investigating group, the Wickersham Committee, was
due to report and change was in the offing.

In late January, 1930, the Secretary appeared before

 

29Hoover, Memoirs, p. 31.

263

the House Committee on Expenditures by Executive Depart-
ments to speak on behalf of a bill to transfer the Pro-
hibition Bureau to the Justice Department. As he had many
times previous, he described the original selection of the
Treasury as "illogical,” that enforcement was unrelated to
other department duties. He declined to answer questions
concerning the effectiveness of current policies because
they were not germain to the bill under consideration. The
Treasury, he said, ”made every effort to enforce the pro-
hibition law," and left it at that.30 A few days later,
Attorney-General William D. Mitchell endorsed the bill.
The Women's Christian Temperance Union, the Anti-Saloon
League and other dry groups which had consistently Opposed
transferal were not invited to testify.

Four months passed before the transfer bill negotiated
its way through the legislative maze, but as of June 1, 1930,
prohibition enforcement was the responsibility of the
Justice Department. While the bill was being fommulated
into law, critics of Mellon took their last opportunity to
lampoon his enforcement program. Senator Smith W. Brook-
hart (R-Iowa) blamed the breakdown of prohibition on the
Secretary, Senator John J. Blaine (R-Wisc.) contended that
the Anti-Saloon League and the administration had an agree-

ment on bureau appointees, and Senator George Norris (R-Neb.)

 

30New Ybrk Thmes, January 23, 1930.

26,1;
requested a Congressional inquiry of prohibition.31
Senator Carter Glass (DéVa.) indirectly supported this last
point, voicing criticism.against the‘Wickersham.Committee
for broadening its scope to the whole field of law enforce-
Ament, thus minimizing its work in the prohibition area.32
The Glass point of view expanded on Capitol Hill and the
Wickersham.Committee was the subject of increasing attacks
until it finally reported in January, 1931.

Senator Boies Penrose had promised Mellon in 1921 that
movement of the Prohibition Bureau to the Attorney-General's
office would take six months or so; it had taken nine years.
Nevertheless, it was the end of a noxious duty that had
generated altogether too many disparaging comments.

Critics now would.chase after the Wickersham Committee or
the Justice Department, and leave the Treasury alone. Too
late to soothe the pain that the years of denunciation had
brought, the Reverend Clarence D. Wilson of the Methodist
Board of Temperance declared that his organization believed
the former stockholder in the Overholt Distillery Company
had done a more credible job of enforcing prohibition than
any of his counterparts of the Justice Department would
have.33

1930 also was an election year and Mellon had.his role

 

31%” April 3 and May 11;, 1930.
32.29.42... May 15. 1930.
33M” May 29, 1930.

265

as ”boss” of Pennsylvania to fill. A senator and governor
were to be elected and all indications were that the fiasco
of 1926 was to be repeated. In the senate race, the Mellon
forces were committed to support the tariff lobbyist, Joseph
Grundy, who had been appointed to serve in the place of
‘William S. Vare after the Senate finally declared the
Pennsylvania seat vacant. To his disappointment, Hoover
had not helped Vare as the Philadelphian hOped he would;
the Kansas City strategy was a failure. Governor Jehn
Fisher had selected Grundy with the understanding that he
would defend Pennsylvania in the upcoming tariff battle
and that he would be a candidate in 1930. Former state
treasurer Samuel Lewis was to be his running mate for
governor.

In a shrewd tactical move, the besmudged victor of
1926 and boss of Philadelphia withdrew from the race and
cast his lot with Secretary of.Labor James J. Davis.
Davis had not announced, but Vare's conversion was enough
to draw'him.into the primary fight. The decision of the
Secretary of Labor presented a dilemma for the Mellons.
The rule in Keystone state politics was one senator from
each half of the state and the western branch already had
David A. Reed. Though he had not lived in Pennsylvania
for almost twenty years and was not a Mellon man, he was
considered a Pittsburgher and presented Mellon with the
quandary of coming out against his Cabinet partner or of

266
supporting him and sacrificing Reed to the eastern wing in
l93h. not to mention incurring the wrath of Grundy.

At his diamond birthday celebration in his home town in
late March, the Treasury chief conferred with his political
lieutenants. In an attempt to lure the Vare faction into a
harmony ticket, he proposed that Grundy's running mate,
Samuel Lewis, retire from the field in favor of Francis
Brown, former Attorney-General of Pennsylvania and the
Philadelphia choice for governor. Though Lewis did with-
draw, Grundy objected to running with Brown, Vare main-
tained his support for Davis, and plans for a.harmony ticket
went awry.3h Matters were further complicated when Grundy's
old friend and a Republican maverick, Gifford Pinchot,
jumped into the governor's race and.Mellon's candidate for
Senator in 1926, George Wharton Pepper, put himself behind
the Davis-Brown ticket. Pinchot's candidacy doubtlessly
undermined the cohesiveness of the Grundy-Mellon forces be-
cause many peOple who liked Grundy also preferred Pinchot,
but the Secretary had been fighting him.aince 1922 and
harbored no intentions of a Grundy-Pinchot harmony ticket.

The result of the primary, victories for Davis and
Pinchot, was a smashing defeat for the Mellon machine. In
ten years of ”running” the Republican Party in Pennsylvania,

the Pittsburgh banker turned politician was abyssmal in

 

3“Ibid., March 27, 1930 and A.H. Hutton, The Pennsyl-

vanian: Josegh R. Grundy (Philadelphia: Dorrance & 0.,
D pp. ' e

267

dictating election results. The only time his candidate
reached the winner's circle was on a harmony ticket, and
each time he bucked the Vare machine, he lost. His grip
on Pittsburgh politics was tenuous as well. Hoover was
able to carry Allegheny County by only h,OOO votes in 1928,
and in 1932, Roosevelt swept the county. The ease with
which Republican politicians in Pittsburgh switched allegiances
to the Democratic forces after 1932 adds further suspicion as
to how well Mellon controlled his home community.

Consistent failure at the polls leads one to ask if
there was a Mellon machine. If there was, it certainly was
inept. A more accurate description of the Secretary's
political involvement in the 1920s would emphasize money.
Like Grundy, he could help you financially, but to get the
votes, a candidate needed the well disciplined Vare machine
of Philadelphia. 'Vare was not a very colorful or attrac-
tive figure, but if anyone ran Pennsylvania, he did. The
Mellon machine, though not quite a myth, was a hoped for
thing, an often talked of thing that never materialized on
election day. It was a threat that other Republicans
acknowledged, and then would ignore if they did not agree.
When Smith and Roosevelt altered the voting habits of the
urban areas, what remained of the Mellon machine was
abrogated to David Lawrence and.the Democrats. Lawrence
built an effective machine in the steel city, but like the
Mellons before him, he had to take a back seat in state

266
politics to‘William.Green and the Philadelphia forces.
Beginning with Simon Cameron and James Buchanan in the
Civil war era, the City of Brotherly Love held the key to
Pennsylvania politics.

Another element in understanding the Secretary's
deteriorating position in national and local politics was
the cooling of his relationship with Senator David L. Reed.
In 1928, Silas Bent described their relationship ”as near
Cabinet representation on the legislative floor as anything
we have seen in this country."35 Reed had been chosen by
Mellon and.his victories in 1922 and 1928 were the notable
exceptions mmidst the string of defeats. Uhtil his re-
election, he had performed as directed, even to the extent
of arguing in favor of seating Vare, a.msn‘whom.he person-
ally disliked.

Secure in his re-election and growing in seniority on
two very important committees, Finance and Foreign Relations,
Reed began to sever the umbilical cord. thought by many to
be an egotist, he groomed an image of a statesman sufficient
to be chosen to attend.the London Maval Conference and to be
considered a contender for the presidency of his alma mater,
Princeton. The former chief counsel for United States

Steel had come a long way.36

35Silas Bent, ”Andrew W. Mellon,” Scribners, January,
1928, Pe 29s

36For Senator David Reed's arrival as an independent
figure on the national scene, see: ‘Hilliam.c. Murphy,
”Senator Reed, Pennsylvania's Gift to the Nation,” Nbrth

269

His acceptance of a delegate's position to the naval
conference was the first visible sign that he was no longer
Mellon's man. Most observers expected him to marshall the
high tariff forces in an upward revision of the Fordney-
McCumber Tariff. He did push the Smoot-Hawley bill through
committee, but then abandoned it, leaving the difficult
floor fight to the aging Reed Smoot while he played diplo-
mat in London. By the time he returned, the bill had been
so altered that it was thought for a while that he and
Grundy might vote against the finished product.

During the tariff battle as in the last one, Mellon
followed Parker Gilbert's maxim.of keeping hands off. The
Insurgents, however, saw the tariff as an opportunity to
attack the Secretary at a vulnerable spot, his wallet.
Unable to crack him by direct assault, they sought to
antagonize him by reducing the protection on industries in
‘which he was heavily invested, particularly aluminum. With
Reed in London, who would defend Alcoa and the others?

Before the Treasury chief left office, the gulf between
the two men widened further. In 1931, for example, when
Mellon was leading the Hoover forces in the fight for
Congressional approval of the foreign debt moratorium and
indicating that further negotiation of the settlement might

be necessary, Reed voiced strong opposition to anything

‘—

36(cont.) American Review, May, 1931, pp. kl9-27 and
Ray T. Tucker, "ESaHer o? the Status Quo," Outlook, December,
1929 , pp e 6h9'51 e

27C
beyond the moratorium. When taxes became an issue in
late 1931, the senior Senator from Pennsylvania did not
sound out Congress for the Treasury as he had done before.
Instead of parroting suggestions, he offered a few of his
own, and his strong statements on behalf of a sales tax
could have embarrassed Mellon were it not for the growing
awareness that he was launching a new career independent
of his mentor.

Mellon had begun the depression period as the seeming
albatross of the Hoover administration. In the immediate
post-mortems, he bore the brunt of most of the blame. As
the weeks and months of 1930 unfolded, however, he con-
tinued the policy of avoiding confrontation and exposure
on volatile questions. The Congress, seat of most of his
opposition, absorbed itself with the tariff and prohibition,
and made only passing references to the Secretary. In the
meantime, Ogden Mills grew in stature as Under-Secretary,
assuming more of the public duties of the Treasury, particu-
larly speaking engagements and the defense of various
policies.37

The Secretary did grow sensitive about his tarnished
image after the crash.and iniated a quiet public relations
program.to correct the problem. His longstanding rule of

privacy was broken and he granted interviews relating to

A A...

37Mellon, Mellon's Sons, p. R70; Outlook, March.h,
1931, p. 331; and "The KeIIon-Mills ShEEeup,l Literary
Di est, February 20, 1932, p. 12.

271
his personal life and habits. Articles such.as‘william
Davenport's ”A Day with Andrew Mellon” and Theodore G.
Jeslin's "Andrew‘w. Mellon, the Dean of the Cabinet” por-
trayed the Secretary in a favorable light.38 Other
articles frequently appeared in popular magazines and the
newspapers often picked up the material. The plan was a
temporary success, working well in 1930 when.his critics
were distracted by other issues, but they did not save his
reputation when the attacks resumed in 1931.

This writer has argued that Mellon did not comprehend
the magnitude or the seriousness of the depression when it
began, that in the face of crisis he was confused, and that
his responses were grounded in a tradition no longer ap-
plicable to the urbanized, industrialized society of 1929.
He was by no means alone, however, When the fiscal year
ended June 30, 1930 with a surplus of $18k million, most
of the nation's politicians were fooled. Thewaent on to
contest the off-year elections over prohibition, not de-
pression. The Democrats, in fact, seemed to accept the.
Republican explanations for the temporary setback when the
Chairman of their Executive Committee, Jouett Shouse,
blithely stated: “or course, Secretary Mellon is honest
in his assertion that the panic is the result of natural

conditions."39 Recovery was believed to be around the

 

38Colliers March 29, 1930, p. 13ff and'worlds Work,
June, l§§5, p. éBff.

39MYork Times, October 31, 1930.

272
corner until the bitter winter of 1930-31 and the growing
deficit, $300 million in the first five months of fiscal
1931, proved differently. With the dawn of the New Year,
'more and more attention was devoted to the economic condi-
tion of the nation.

‘With a growing awareness of the realities of the situ-
ation and the reawakening of the slumbering critics, Hoover
pre-empted the Secretary in government finances. The
President ignored the Treasury and laid out his program in
the State of the Union Address and budget message. The
Annual Report of the Secreta£y_of the Treasury, issued two
weeks after Hoover's messages, was the picture of business-
like formality, containing a minhmumnof opinion and endors-
ing all of the chief executive's nostrums, the Secretary's
personal opinion notwithstanding. New, as had been the
case throughout 1930 and would continue in 1931, Mellon was
treated as an administration.hireling who was expected to
do and say as he was told.

The subservient, background position that Mellon had
assumed and to some degree pursued since the election of
Hoover continued into 1931. The year began with the ap-
pointment of Eugene Meyer to the Federal Reserve Board, a
man the President believed he could work with. The Secre-
tary was thought to have preferred Parker Gilbert and the
outgoing member, Edmund Platt, believed that Mellon had

arranged a lucrative offer to open the way for his former

273 .

Under-Secretary. Any plans the Board Chairman may have had
were ignored as Hoover appointed Meyer without consulta-
tion.’40

As the Bonus Bill was being fought through the short
session, the official statements bore Mellon's name, but
Mills explained and argued the Treasury position. when he
did speak to newsmen, he was often interrupted by one of
his lieutenants who would begin with ”What the Secretary
meant was. . . .” Though subordinates did the talking,
Mellon was still Secretary, and his opposition to the bonus
incited many people. A freshman Congressman from Texas,
wright Patman, exploited the Treasury‘head's negative at-
titude, devoting much of 1931 to speaking around the coun-
try to veteran's organizations and building a national
reputation, claimdng that he would impeach the Secretary
when the SeventyOsecond Congress convened in December.“1

Andrew'w. Mellon's last moment of glory as Secretary
of the Treasury came in mid-year with his participation in
the negotiations over the Hoover moratorium. Sailing in
early June to attend.his son's graduation at Cambridge, he
was in London when the President announced his plan and
was directed by'Washington to carry on the discussions.
He was not, however, a minister plenipoteniary; he received

detailed instructions from.Hocver, Mills, and Secretary of

 

hoHamlin M33, Index Digest, Vol. 18, pp. 152-53.
“tygw Yerk Times, April 28, 1931 and June 25, 1931.

1
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,
4
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\
.u-
D

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.
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.- a...

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27h

State Henry S. Stimson on what to say and do. The President
claimed that Mellon objected to the concept of a inter-
governmental moratorium, and welcomed the opportunity to
work directly with Mills while the Secretary was in
Europe.“2 When questioned by reporters in Paris, he told
them.that he could tell them nothing unless Washington said
it first.“3 Each day the Secretary received his instruc-
tions by trans-Atlantic telephone, and was a frequent
visitor to the public phone booth in the lobby at Claridge's.

The French balked at the terms of the moratorium, and
the President displayed a further lack of faith in his
Treasury chief by dispatching the Secretary of State to
Paris to takeover the talks. When Stimson requested Mellon
to quickly come to Paris from.London, newsmen gathered
about and asked him why he was summoned in such haste.
Obviously disturbed by the way he was being shuffled around
and the fact that the press recognized the impotent role he
was playing, Mellon hostilely reacted to their questions.
He angrily told the reporters: "I grant no interviews
outside the United States, and as few as possible there."hh
His last moment of glory was a bleak one as the President
of the United States told the world that ”the greatest

Secretary of’the Treasury since Alexander Hamilton" was

 

hZHoover, Memoirs, p. 68.
h3N»: Yerk Times, June 28, 1931.
thbid., July 18, 1931.

 

' 275
incapable of handling the moratorium problem.

Mellon vacationed in Europe after the moratorium dis-
cussions and by the time he returned, the nation's finances
had reached the crisis point. The deficit for fiscal 1931,
projected at $180 million in December, 1930, reached $903
million, and the first sixty days of fiscal 1932 saw an
imbalance of $k00 million. Anyone who had been doubtful
about the magnitude of the depression was more than awakened
by the astronomical figures. His detractors sped up the
flow of negative comments about the state of the economy, the
proposed tax increase, and his opposition to the bonus.
Carrying the weight of the problems was enough; he collapsed
with the additional weight of criticisms He was no longer
confused; he was befuddled. Nearly seventy-seven years of
age, he was wearing down. The politicians who had ignored
him for the first year of the depression, now blamed him
for every problem. To them he was an albatross, a har-
binger of tragedy and the country would not right itself
until he was gone. As the deficit increased, so grew the
talk of impeachment. The end.was in sight.

CHAPTER-VIII
THE MAN WHO STAYED TOO LONG

In the politicians bag of tricks, timing is the most
important element. Talent and ideas can carry a man only
so far in the political Jungle. If he hopes to achieve
his goals, the practical politician mmst know when to act,
when to be discrete, and possess an instinctive ability to
Judge the current of opinions and events. The battlefield
of American political history is strewn with the bodies of
capable men who misjudged.the currents and moved at an in-
opportune momemt .

Secretary of the Treasury Mellon's sense of political
timing was never particularly good. His sensitivity to
the inner workings of the federal establishment was not
nearly as keen as in the business world. In the cold war
of the political arena, he often fumbled and misjudged.
His frequent, usually unnecessary, and always overdrawn
battles with the legislative branch serve as a continuing
example of his inadequate sense of timing. Bound by the
strictures that he was right and the opposition was wrong,
he often plunged.headlong into something with a.minimum.of
tact and diplomacy. His running feud with Senator James
Couzens was a case in point of casting of timing, tact, and

276

277
diplomacy to the wind. The end result was that the Secre-
tary rarely obtained all that he wished for, and even the
compromises were usually the product of more than one ef-
fort. His tax program.required.hostilities with three
Congresses and the final tally, though it showed him.the
victor, lacked the completeness that was a distinct pos-
sibility had he recognized the need for timing as well as
ideas, grounded though they may be a scientific and 10gical
reasoning.

To.misjudge an issue and settle for a compromise is
one thing: to completely miscalculate the mainstream of
events and sacrifice ones position and career is yet an-
other. The former could occur often, the latter only once.
In the Secretary's case, Robert Allen and Drew Pearson
abtly described the post-crash period. ”Andrew William
Mellon will go down in history as the man who did not know
when to quit."1 If he had.had a grasp of the realities of
timing, Mellon would have retired with Coolidge in 1929.

Instead of withdrawing at an auspicious moment, the
Pittsburgh banker procrastinated until he was driven out.
It was shown earlier why he chose to remain into the be-
ginning of the Hoover administration, but why he continued
after his former Cabinet adversary accepted.his programs
is unfathomable. Criticized in the early days of the de-
pression, 1930 witnessed a diminishing of negative comments

4‘

1R.S. Allen and Drew Pearson, Washin ton Merr -Go-
'Round (New York: Horace Liveright, Inc., I931}, p. 153.

278

as opponents focused their attention on other matters.
There was time in the first year after the stock market
debacle to withdraw graciously, but he did not. In 1931,
when people and politicians began to comprehend the magni-
tude of the situation, the volume of criticism rapidly
increased until it reached a fever pitch. His implacable
opposition to the bonus, his support for the foreign debt
moratorium and indication that he might countenance re-
opening of the settlements, his continued fatalism and
orthodox attitude about the causes and solutions of the de-
pression, and.hints that tax increases were necessary pro-
vided a series of rallying points for diverse groups who
began to picture him as the stumbling block to resolution
of their proposals. Growing defensive about the deluge
of unflattering statements, Mellon retreated into his shell,
snapping at reporters on his return from.Europe in August.
Refusing to comment on any subject, he told the press corp
that he ”was able to get along quite well in Europe with-
out any interviews” and intended to maintain that policy.2

For several months in 1931, the Secretary filled the
useful position of administration lightening rod. While he
was attracting the attention of the dissatisfied, the Pres-
ident turned more and more to Mellon's aggressive assistant
Mills. In his collapsed state, not knowing what to do but

frowning on most White House suggestions, his value to

 

2New York Times, August 25, 1931.

279
Hoover was limited. Should the opposition continue to grow
louder and more pointed, he would have to be removed.

Mellon must have been aware that he was being kept on
as a lighning rod. He accepted that role and stayed in
'Washington, this writer believes, in the hope that the un-
controllable economic forces would naturally reverse theme
selves and that by March, 1933, things would be better.
Then he could retire to Pittsburgh, not in the glory that
would have been his in 1929, but at least free from at-
tacks, many of which had become extremely personal. Calms
ness under pressure and wait for a natural return to
normalcy were the order of business.

The return to normalcy would have to be a natural one,
for the conservative financier was doing little to assist
matters. Having no conception of what could be done with-
in his laisses-faire framework to ameliorate conditions, he
fell back upon a tax increase predicated on the.idea of
maintaining the government's financial integrity while
weathering the storm. The out-country banker believed that
the country must live according to and not beyond its means.
The fact that a tax increase and a corresponding shrinkage
of government expenditures might retard the natural forces
of return apparently did not enter his thinking.

The formation of what was to become the Revenue Act
of 1932 was Mellon's last official task. Alarmed by the

even increasing deficit, Hoover directed the Treasury to

280
approve an appropriate tax increase. Mellon and Mills
spent the fall of 1931 preparing a bill that was essentially
a return to the l92h level of taxation. There would be
nothing novel or scientific about the new act; it was simply
an increase.

Absorbed with the formulation of the new revenue bill
and working for Congressional approval of the debt mora-
torium, the Secretary ignored the encroachment of the Under-
Secretary on his prerogatives and appeared oblivious to the
growing clamor for his impeachment. By December, Mills was
the acknowledged leader of Hoover's inner Cabinet and.had
taken over completely as Treasury spokesman.' In a feature
article tracing the ascendancy of the Hudson Valley aristo-
crat, the new York Times noted:

A chief more jealous of his authority than

Mr. Mellon might resent Mr. Mill's position

as a direct advisor to the White House. A
subordinate less sure of himself than Mr.
Mills would have been in difficulty long ago.3

As for the impeachment discussions, rather than move
to block Wright Pamman's demand that the reincarnation of
Alexander Hamilton be driven from the temple of the Treasury,
the Secretary ignored it. By the time he realized that
Patman was more than just so much talk,the papulist Congress-
man had attracted considerable support; it was too late.

The decision on when he would leave and under what circumr

stances was no longer his to make.

 

3 ids, D.COMber 20, 1931c

281

That Mellon underestimated the danger inherent in
Patman is to a degree understandable. This was not the
first thus that he had heard cries for his removal, but was
the culmination of over ten year's efforts by a variety of
different people. On at least six other occasions, his
eligibility to hold office or his activities as Secretary
were called into question. His mistake was in believing
that the arguments he had successfully marshalled in earlier
attempts would withstand changes in the currents of time and
opinion.

Before accepting President-elect Harding's tender of
the Treasury portfolio, Mellon was informed by his attorney
that he might be ineligible to hold office.” Desiring to
see his friend in the Cabinet, Senator Philander Knox sought
to allay any fears and offered to have the prominent Wash-
ington law firm of Faust and Wilson investigate any question
of his eligibility. They confirmed the Senator's belief
that the investment banker would meet the requirements of
the law by resigning his directorships and selling his bank
stock. Doing as directed, Mellon recalled later that he
severed his business connections in 1921 ”as if I had died
at that time."5 Though formally removing himself, he knew

full well that his investments would be carefully guarded

”W.L. Mellon, Judge Mellon's Sons (n.p., 19h8), p. hOl.

5U.S., Congress, House, Hearings before the Committee

on the Judiciar House of Re resentative on House ReseIu-
Egon 52, 7255 Congress, Ist Session, I932, p. ID.

 

282

by his brother Richard. His younger sibling fulfilled his
expectations, and in 1930, when the Secretary was divesting
himself to his children, sold the bank stocks to Andrew's
son Paul. In both the 1921 and 1930 sales, no money changed
hands, only notes, and the rate of interest was geared to
the dividend rate of the banks. The father later forgave
his son $8 million of the $10 million debt.6

'Within a year of his arrival, the Secretary clashed
with Congress over authority to settle the World War I debts,
and the opposition openly challenged his eligibility to
hold office. Senator Thomas E. Watson (D-Ga.), Byran's
running mate on the Peoples Party ticket in 1896, argued
that the Treasury chief violated a 1789 statute which pro-
hibited the Secretary of the Treasury from'being “directly
or indirectly concerned in the carrying on of trade or
commerce.” Because of the violation, he explained, Mellon
”could on any day we say fit be impeached. . . .‘7 Watson's
charges were dismissed for the time being, although the
question of the Secretary's eligibility came up occasionally
in Senate debate.
' In the spring of l92h, Senator Kenneth McKellar
(D-Tenn.) breathed new life into the accusations. 0n the

same day, March 28, that Attorney-General Harry Daugherty

 

6Official Re ort of the Proceedin s before the United
States Board of Tax Appeals, Andrewgw. MeIIon v the Com-

missioner g§_Internal Revenue, Respondent, pp. h388-97.

7U.S., Con essional Record, oath Congress, 2nd
Session, 1922, E§II, Part 3, 2505-0 .

 

283
resigned under Congressional pressure, McKellar introduced
a resolution directing the Judiciary Committee to determine
if the Treasury Secretary was "directly or indirectly con-
cerned in carrying out trade or commerce.“ If so, then
Mellon would follow in the footsteps of Secretary of Interior,
Albert Fall, Secretary of the Navy, Edwin Denby, and
Daugherty.

Mellon decided to answer the challenge and permanently
silence any objections to his eligibility. Using materials
compiled at the Treasury, Senator David Reed gave a point
rebuttal to the allegations.8 In the course of debate, the
senior Senator from Pennsylvania revealed that Mellon had
investigated the question before taking office, and denied
that his mentor's stock holdings in anyway constituted a
violation of the 1789 law. He was assisted by Senators
Henry Cabot Lodge (R-Mass.) and Simeon Fess (R-Chio) in
refuting the accusation that the Secretary had acted hm-
properly in a tax refund to a corporation in which.he was
hgavily 1nvastgd.9 The Tennessee Democrat disputed their
interpretation of the law, but with.the Regular Republicans
rallying to the Mellon standard, the resolution was fili-
bustered. The Secretary's public stature was reaching its

peak in l92h, and there was not nearly enough Congressional

 

8Eligibility of Secretary Mellon to Hold Office folder,

Secretary's file, Official Corres ondence of the Secretar

of Treasury, Record Group 35, NatgonEI Archives, Box 2I3.
9U.S., Coggressional Record, 68th Congress, 1st Session,

1921‘, LIV, P” g m -530

 

28h
or public support to carry through a successful ouster”
proceeding. After the Teapot Dome scandal, most everyone
lost their taste for investigations.

The McKellar resolution may have died, but the central
issues were not resolved. The two principal questions, did
simple ownership of stock constitute direct or indirect
interest and was manufacturing included in the phrase trade
or commerce, were not settled. Taking a broad interpreta-
tion, the McKellar adherents answered yes to both questions.
The Mellon forces assumed a strict construction viewpoint
and said no. The opinion on the latter question was
reminiscent of Stephen Field and the Supreme Court in the
B.C. Knight case of 1895: manufacturing was distinct from
commerce, and since the Secretary's investments were in
productive industries and not the transportation sector,
the law did not apply. Remaining inconclusive, they
threatened to reoccur at any time.

And occur they did in 1929. When the Insurgent
Republicans were foiled by President Hoover's manuever of
continuing Mellon in office without a new appointment, they
directed the Judiciary Committee to investigate the validity
of such an action. Even if it was valid, they challenged
his legal right to the office under the termm of the 1&0.
year old law and insisted that the committee determine his
eligibility. '

A A detailed inquiry followed the Merrie Resolution.

285

The committee unanhmously agreed that the President could
keep any Cabinet member except the Posmmaster-General as
a holdover, but supported his eligibility by a vote of 8 to
5, with the majority ascribing to the strict construction
epinion propounded by Reed and Attorney-General William D.
Mitchell.10 a.minority report, written by Chairman George
Norris, took the McKellar position and presented a well-
documented and‘well-reasoned argument against the Secre-
tary's eligibility, and found him in violation for being a
stockholder.11

Senators William E. Borah (R-Idaho), William H. King
(R-Utah) and 0.0. Dill (DéWash.) submitted five pages of
"views,” concluding that the intention of the law was ”to
divorce the Secretary from all attachment to his private
interests to the detriment of public business."12 However,
the law was vague as to what constituted a conflict of
interest and should be clarified by Congress before pro-
ceeding against the Treasury chief. The lOgic of the Borah
group would indicate that any man with Mellon's investments
had a 'conflict of interest," but was not in violation of
the law as written and haphazardly interpreted.

It is this writer's belief that the Pittsburgher was

an outstanding example of a conflict of interest, although

 

10Hearings on House Resolution 22, pp. 7u-76 and 167-70.
111bid., pp. 77-105.
12Ibid., p. 13h.

286

there is no evidence that he ever misused his position.
However, what today is considered a blatant example of a
conflict of interest was considered by President-elect
Harding a valuable asset. Where the doctrine of expertise
leaves off and conflict begins is a difficult to define
point.

In 1929, however, more conflict of interest was not
enough for removal: a breach of law was necessary. The
thme to have questioned the Secretary's business involve-
ments was in March, 1921 when the Senate confirmed the new
Harding Cabinet in one afternoon. To wait three years and
then eight years before seriously challenging him indicates
that the opposition's disagreement stemmed from an ideo-
logical rather than a legal or moral base. Those who
sought to see Mellon removed were the same men who had
consistently fought him.aver taxes and the handling of the
foreign debt. The group included Senators Couzens, McKellar,
Norris among others. Their motivation seems to have emanated
from a divergence of epinion on financial policies, with the
easiest way of changing policy being the removal of the man
most responsible for them. The Washington Post editorialized
that the points raised against Mellon ”were palpably in-
spired by unscrupulous political motives,” and even a
journal normally hostile to the Secretary, New Republic,

conceded that the charges of "picayune persecution”

28?

might be true.13

Having fended some of the best men in the Senate on
the eligibility question, it is a little more understandable
why Mellon would not be intimidated by so unknown a Con-
gressman as first termmr Wright Patman. In ignoring him,
the Secretary missed two crucial differences between the new
threat and the old. His principle omission was his failure
to recognize that times had changed, that the public and
its representatives on Capitol Hill were more inclined to
listen to the charges and were likely to agree with them.
When he was phased in the Twenties, he was the prophet of
progress; in 1931-32, he was a prophet fallen on bad times.
If Patman did not make his case, others would try. Repre-
sentative Fiorello LaGuardia (R-N;Y.), for example, also
was gathering materials for impeachment proceedings.1h

The Secretary's second failure was in not realizing
that previous ouster attempts had originated in the Senate,
a body constitutionally unable to move until after the
House of Representatives had acted. Norris had objected to
the 1929 investigation for that reason, believing that a
Senate inquiry might make future impeachment proceedings by

the House illegal.ls Patman was in the lower house and was

 

1

3Washiggton Post, April 20, 1929 and New Republic,
May 8, O

1hHoward Zinn LaGuardia in Con
gress (Ithaca: Cornell
University Press, 195377—5. 219.

15New York Times, March 6, 1929.

 

288
in a position to impeach.him.and force the Senate to act,
thus guaranteeing that the eligibility question would be
settled once and for all. Given the change in public temper
wraught by the depression, that settlement would probably
be adversse to the Secretary. Having misjudged the current
of events, he would pay for it with his position.

The former prosecuting-attorney from.Texarkana, Texas
followed through with his threat in a dramatic presentation
before a packed House and gallery in early January, 1932.

Mr. Speaker, I rise to the question of constitu-

tional privilege. On my own responsibility as a

Member of the House, I impeach Andrew William

Mellon, Secretary of the Treasury of the United

States, for high crimes and.misdemeanors. . . .16
The indictment was a conglomerate of all the charges made
previously, both in the Senate resolutions and debates,
and included a few new ones. He not only charged him with
violating section 2M3, title 5 of the Revised Statutes of
the United States (the 1789 law), but also accused him of
granting illegal tax refunds and rebates to companies in
which he had substantial interest, of owning banking stock
when the Federal Reserve law prohibited such, of manufac-
turing liquor in spite of the prohibition laws, of inducing
the Supervising Architect to require the use of aluminum
in public buildings while the Secretary was a principle
stockholder in Alcoa Aluminum, a monopoly, and of having

an interest in a company carrying on trade with the Soviet

16U.S. Con ressional Record, 72nd Congress, 1st
Session, 19km.

 

289
Union in violation of the law preventing the importation of
goods manufactured by convict labor. With.House Resolution
92, the wheels were set in motion and within a month Mellon
would be gone. It was too late to withdraw gracefully.

But Mellon had no intentions of running frmm Patman.
Instead, he retained the former Solicitor of the Internal
Revenue, Alexander W. Gregg, to defend him.and gave every
indication of fighting until the bitter end. President
Hoover was more attuned to the realities of the situation
and sought to ameliorate the tragedy. With Ogden Mills
available as a more than adequate successor, he took ad-
vantage of the resignation of Charles Gates Dawes as Ambas-
sador to the Court of St. James and he shuffled Mellon out
of the country. The former Vice-President and Budget Direc-
tor was returning to administer the Reconstruction Finance
Corporation, something the President hoped would help pull
the country out of its doldrums. As he had on many other
suggestions, the Secretary had been lukewarm.in his support
for the Reconstruction Finance Corporation, thus providing
the White House with yet another reason to wish.him.gone.17

The President, administration supporters, and the new
Ambassador's friends tried to dress up the appointment as
being legitimate rather than exile, emphasizing that he

was a well known Anglophile and possessed some diplomatic

17Gerald D. Nash, ”Herbert Hoover and the Origins of
the Reconstruction Finance Corporation," Mississippi Valley
.flistorical Review, XLNI (December, 1959): P. E53.

290

experience as a result of his frequent talks with foreign
dignitaries on.his summer vacations.18 Most observers saw
through.the facade, believing the Secretary a victim.of
the persistence of Patman and Mills.19 Even before Patman
could launch his campaign, an anonymous observer for Outlook,
who a year earlier had noted Ogden Mill's meteoric rise,
gloated in his latest report.

Mr. Mills has emerged, as we predicted he would,

to be the dominant figure in the Treasury, and

to be the man upon whom Mr. Hoover places strong-

est dependence in these exciting days. . . .

Now it maybe recorded, and truthfully, that Mr.

Mellon serves under Mr. Mills, and in so far as

financi§$ matters are concerned, so does Mr.
Hoover.

Irwin Hoover, longtime White House doorman, corroborated
this view, stating that "never did I know a President so
dependent on a Cabinet officer. Mr. Mellon was nothing in
comparison."21 That was a strong statement considering that
Irwin Hoover was on hand during the Coolidge years when many
believed Mellon to be dictating to the President. But no
matter what the reason, the Pittsburgh banker sailed for

 

18Dr. Richard Van Kuhlmann, "Ambassador Mellon,"
Living Age, May, 1932, pp. 236-37; H.P. Beazell, ”The new
American Ambassador," werld Toda , March, 1932, pp. 383-903
New Yerk Times, February h and , 1932; and Times (London),
February g, I§32.

19Charles S. Hamlin MSS, Index-Di est, Manuscript
Division, Library of Congress, Vol. 25, p. 172 and ”The
Mellon-Mills 'Shake-Upfl, Literar Di est, February 20,
1932, p. 12.

ZOntckgtage in Washington,” Outlook, December 23,
1931, p. 522.

21Irwin H. Hoover, Fort ~Two Years in the White House
(Boston: Houghton: MiffIIn 50., I935), p. 2K7.

 

291
the land of his ancestors in March for a years sojourn in
Britain, and the newspapers speculated on whether or not he
would wear short pants when he presented.his credentials
to the King.

Mellon's resignation made the impeachment charges moot
and the brief investigation conducted by the House Judiciary
Committee was discontinued. Patman, LaGuardia and two others
on the_oommittee declared in a.mdnority report that they
agreed that the investigation should be terminated, but such
action should not be construed as exoneration.22 Over
thirty years later the Texarkana Democrat, then Chairman
of the House Banking and Currency Committee, would address
a veteran's celebration day at the Texas State Fair and
declare his fimm conviction that Mellon was guilty as
charged and had fled the country to avoid prosecution.23
He also displayed a degree of consistency remarkable in a
politician when he opposed the appointment of David Kennedy
as Secretary of the Treasury in Richard Nixon's Cabinet for
some of the same reasons he used in arguing against
Mellon.2h Had it not been for the President's adroit

maneuver, Andrew W. Mellon would have probably carved another

 

22Wright Patman to author, February 12, 1968.

23Speech, Veterans of World War I and Seniors Citizens'
Dgz at the Texas State Fair, Dallas, Texas, October 13,
l 5 (n.p.), p. 5. See also W. Patman, Bankerteerin ,
Bonuseering, Melloneering (n.p., 193a).

2""Wall Street Journal, May 1, 1969.

292
niche in history--the only Cabinet member of the twentieth
century to be successfully impeached.

As was customary, the Ambassador to Great Britain
tendered his resignation to the incoming President and re-
tired. Retirement, unfortunately, was not to be a period of
contentment. ‘Within two months of his return home, Attorney-
General Homer Cwmmings announced that he was giving his
personal attention to charges that Mellon had evaded several
million dollars in taxes by bogus stock sales.25 Two months
later, Harvey O'Connor's sensational expose Mallon's Millions
appeared. The Pittsburgh banker called it ”a travesty of
truth,“ but the public fed on the sensationalism.26
Hounded from office for his public affairs, now his private
life was splashed in print. [Losing his position was a blow;
watching the destruction of his privacy and the malevolence
that accompanied it was Just short of fatal.27

Later in the winter of 1933-3ha after a year of rumor
and innuendo, Andrew Mellon, Thomas Lamont, a Morgan
partner, Thomas L. Seldo, a colleague of Newton Baker, and
the colorful Mayor of New York, James J. Walker, were
charged.with tax evasion. In a statement read by his
trusted aide of over a decade, David E. Finley, Mellon called

A

25Now Yerk Times, May 12, 1933.
26Ibid., August 11, 1933.
27Mellon, Mellon's Sons, p. 513.

2943

it ”politics of the crudest sort."‘?8 At other times he
charged the Roosevelt administration of waging "aeampaign
of character wrecking and abuse” and with maliciously at-
tacking him as the symbol of a party in an effort to swing
Pennsylvania in the upcoming election.29 He declared him-
self willing to go to court to clear his name, priding
himself in the fact that in the last twenty years, he had
paid $20 million in taxes.30

Arthur Krock, Washington bureau chief of the New York
11.1%.! wrote at the time that President Roosevelt did not
know what Cumings was planning.31 Claiming that there was
indignation in the Capital by many in both parties over
Mellon's treatment, and a growing fear that the Attorney-
General had blundered, Krock said that fingers were crossed.
Most did not think that a Secretary of the Treasury like
Mellon who was frequently attacked would have been sufficiently
”soft in the head” to seek loopholes. Cummings, it was
thought, had made a mistake in charging evasion instead of
technical error.

On the eve of the grand Jury meeting, the retiree told

the press he was being 'railroaded," that there was an

 

28New York Times, March 12, 193;.

2911,14” March 11, 1931; and Mellon, Mellon's Sons,
pp. “95-990

3°New York Times, March 12, 19314..
311b1d., March m, 1931;.

29h
"attempt to regularise a campaign of terrorism.with the
tax law as a weapon,” and that he believed he overpaid his
taxes and would go to the Board of Tax Appeals to seek
redress.32 When a grand jury of working class people re-
fused to indict, the ex-Secretary beammd with pride.
Six months later he appeared in Washington to claim a
$130,0h5 refund, and the government countersued for over
$3 million. For three years, his case languished before
the Board. In December, 1937, foru months after his
death, the Board of Tax Appeals unanimously ruled that he
owed $600,000 in back taxes, interest and penalties, but

cleared him of any involvement in‘fraud.33

In the midst of the trial came the announcement that
he was providing the country with a National Gallery of
Art.3h Visiting with President Roosevelt at Christmas
time, he proposed to donate $10 million for a building, a
$5 million endowment, and his personal art collection,
variously estimated from $19 million to $50 million. It
was the largest gift ever by a private citizen to the
government.

Herbert Hoover, writing in his memoirs, said that his
Secretary had related his intention of building a gallery

 

3zIbid., May 5. 193%-

33Ibid., December 8, 1932. Judge Mellon's Sons has a
reasonably accurate discussion of the case, pp:_h89-513.

31‘New York Timms, January 3, 1937.

295
before the depression. Had.he made the announcement be-
fore 1937, the ex-President lamented, Mellon would not
have had to endure the vituperation of the Thirties.35
This is doubtful for rumors that he would build a gallery
cropped up several times after his retirement, but they
were always denied, as were the suggestions that he was
spending mdllions for art while many Americans were going
hungry. In this instance, his timing was unusually good.
New Years 1937 witnessed a revival of the economy and the
public was prepared to accept the thought of million's
being spent for beauty instead of food.

Death came quietly to Andrew Mellon on August 26, 1937
at the home of his daughter Ailsa, Bonnie Dunne, in
Southampton, Long Island. At age eighty-two he left this
orthodox world, a world that had gone from steam engines
to the verge of atomic energy, for another. Denied.happi-
ness and contentment in this life, perhaps he would find
relief in the next.

35Herbert Hoover, The Memoirs of Herbert Hoover, Vol.

:9 The Presidency (New Ybrk: The HachIIan Co., I951-52),

CHAPTER IX
IN RETROSPECT

Andrew William.Hellon, investment banker, Pittsburgh
industrialist, and conservative financier, was not ”the
greatest Secretary of the Treasury since Alexander Hamilton."
Neither was he a plutocrat whose ”recommendations invari-
ably called for shifting the burden to the poorer classes.”
The former was an appellation that had no definable mean-
ing, but was latent with innuendo. Some used it simply to
mean praise for a Job well done, while others employed it
to attribute to Mellon the aristocratic, political, and
social philosophy of Hamilton. The latter was, and to some
degree still is, a crass villification intended to indict
him for the maldistribution of income in the Twenties and
the economic tragedy of the Thirties. The Secretary, by
nature a modest and shy man, sought neither the accolades
before the crash nor the disparaging attacks after it. He
came to Washington in 1921 as a prelude to retirement, with
the idea of performing a task the best way he knew and ac-
cording to the dictates of an economic philosophy that-he
sincerely believed in. The unsolicited praise embarrassed

him and the vituperation angered.hims Both were extreme

296

297
and lacking substantial foundation in fact.1

The typical post-depression American has never heard of
Andrew Mellon. The penchant for privacy learned from the
father and religiously practiced by the childrenlhas enabled
him to slip into the dark recesses of history. Today he is
neither praised nor villified; he is simply ignored. His-
torians have touched upon him occasionally, but quickly
cast him.aside as a figure easily stereotyped and thus de-
serving of scant attention.

What we do know of Mellon has largely been colored by
the Roosevelt experiment and the subsequent reform impulse
that captured the imagination of the historical community.
Like most of'his contemporaries, he has often been examined
in so far as he provides a stnawman introduction for the
New Deal. Coupled with the lecherous Harding and ”Silent
Cal” Coolidge, he has been dismissed as a.myopic million-
aire who abused his position of responsibility to relieve
himself and his peers of their duty to support the govern-
ment and to shift the heavy burden of taxation onto the
shoulders of the little man. Because he made millions, the
assumption is that money was his God, and that the quest for

the dollar was his motivating force.

Others with a similar conservative economic and social

1Walter Lippmann has a critical analysis of the com-
parison of Mellon and Hamilton in his Men of Destin (New
‘York: The Macmillan Co., 1929), DP. 1 - , wr tten at a
time when the comparison was very much in vogue.

298
philosophy have also criticized.Mellcn. Some orthodox
economists and bankers, defenders of the status quo, and
fellow politicians have berated many of his policies. The
easy money policy of the Federal Reserve system.and his
position on the foreign debt are good examples of programs
that conservative thinkers decried after the crash. This
group, however, has criticized the Secretary for well-
meaning, but ill-chosen policies, and sought to disown him
during and after the catastrophe of the Thirties. They
have not personally disparaged.him3 they have not accused
him of malice of forethought as have his critics of the
left. To disapprove of what he did because of the tragedy
that followed is one thing; to imply that what he did was
deliberate and.that he knew what the consequences would be
is yet another.

The object of this essay has been to examine the Trea-
sury career of Andrew Mellon and the programs and.the pro-
cedures that he advocated in as scholarly a fashion as pos-
sible. This writer holds no brief for Mr. Mellon and has
not attempted to defend him or to resurrect him as another
Alexander Hamilton. Rather, what was intended was to inter-
pret the man, the ideas, and the accomplishments, to weigh
them.in the context of time, as free as possible of ideolog-
ical considerations, and to draw conclusions on the basis of
what has been observed.

The man that has been presented here was a nineteenth

299

century figure called upon to serve in the twentieth century.
Because of his experiences in the industrial revolution, an
age of individualism, Social Darwinism, and laissez-faire
politics, his selection to guide the nation's financial
destiny was far from the best. His reaction to problems was
grounded in assmmptions that were dated and would soon be
replaced. The Twenties was a transition period from the
old America to the new America, and Mellon was a represent-
ative of the past.

Though.he was a nineteenth century character, a man
who came to maturity in the Gilded.Age and who made millions
in the boom.period of the industrialism, he was somewhat
atypical. He was not a "robber baron,” a ruthless competitor
who built a fortune in unethical or immoral operations with
the bodies of his employees and business rivals strewn over
the path of his success. The bulk of his wealth came from
three sources, through corporations that developed in un—
usual ways. The Aluminum Company of America, for example,
a firm in which he and his brother Richard owned approximately
35%, grew from a garage operation to a monopoly, not by
squashing rivals but by ownership of patents and voluminous
purchases of scarce raw materials. The Mellons also take
pride in the fact that there was no ready market for their
product and that they had to develop one; they had to con-
vince the public of its usefulness. The difficulty of the
government in breaking up the monopoly until after World
‘er II was illustrative of its strange growth. It had

300
gradually developed from a single base; there were no
acquisitions that could easily be lopped off, the tradi-
tional method for destroying monopolies. Similarly, the
Gulf Oil Corporation was the first result of a well drilled
into an oil reserve of astronomical proportions in east
Texas. The oil simply poured out and has continued for
nearly seventy years. The third investment, Hoppers Company,
began in the coke business, but branched out into the chem»
ical industry after World War I. Its scientists and those
at the Mellon Institute, a privately endowed industrial re-
search facility, were instrumental in the creation of syn-
thetics and other coal and coke by-products.

All of this is not to say that the Mellon fortune is
grounded in purity and virtue. What it does say is that a
fortune was compiled with a minimum of effort. All of his
investments were conservative, well thought out ventures,
often aided by chance as in the parallel development of
aluminum and.the aviation industries. Furthermore, much of
his wealth can be attributed to the increased value of his
stockholdings, the prices driven up by yhe desire of others
to share in the prosperity. Andrew Mellon was a conservative
investment banker, not given to speculation or plunging into
dubious ventures. In the words of a Saturday Evening Post
editorial writer, Albert Atwood, ”Mr. Mellon was never a

plunger; he was a supporter. . . ."2 The dividends paid

 

ZAlbert W. Atwood, "Mr. Mellon,” Saturday Evening Post,
my 7’ 1932’ De lOOe

301

by his companies can be attributed more to the accident of
being in the right place at the right time than to his shrewd
business acumen. His shrewdness was in hiring talented men
who were knowledgeable in the ways of corporate Operations
and could make maximum.utility of the assets. The reason his
climb to the top was not strewn with the corpses of the van-
quished was because he did not need to step on anyone. There
were easier methods. His model of a good businessman was the
food processor Henry J. Heinz, a man whom he praised for his
business achievements without being ruthless. ”He has
proved that to be a great business success, a man need not
be ruthless or sacrifice his friends."3

There is another aspect of the nineteenth century man
that demands exposure. That is the conservative almost puri-
tanical strain.that permeated.his fiber. Mellon was educa-
ted in a non-formal sense by his father who instilled in him.
the traits of responsibility, productivity, hard work, and
diligence. Both father and son were classic examples of the
Protestant work ethic in action. They believed in the pre-
cepts of Social Darwinism.and Horatio Alger, accepted Adam
Smith's economics as meaning that there were certain natural
laws that could not be altered.h‘ Government was to be
laissez-faire, adhering to the Jeffersonian.maxim.that "the

government that governs least governs best." The business

 

3Quoted in Will Irwin, "Andrew Mellon Strip ed of His
IMystery," American Ma azine, July, 1930, pp. 80- 2.

hA.W. Mellon, Taxation: The Peo le's Business (New
'York: The Macmillan Co., I92EI, pp. EE-EQ.

 

302
world was survival of the fittest and they feared no one,
witness their challenge to Standard Oil in building a pipe-
line to transport oil from.Western Pennsylvania and West
Virginia to the port in Philadelphia.

These beliefs were as deeply ingrained in both.men as
their faith in Presbyterianism, and they were beliefs, not
rationalizations. In writing his Autobiography, Thomas
Mellon thought himself the incarnation of the industrious
Benjamin Franklin; that he, from humble beginnings, had
overcome the obstacles of life and.had succeeded. His son
Andrew, of course, had a more propitious start, but that
did not mitigate his father's demand that he follow the
dictates of hard work, responsibility, and the avoidance of
extravagance. In the Gild Age of conspicuous consumption,
the Mellon's noticeably did not participate. Andrew's only
failing was a passion for art, and even then the profit
incentive, tax deductions, inflation hedges, and the like,
were evident. That Andrew accepted the cudgel laid down
by his father is important in understanding his future
actions. His driving force was not money, except in the
sense that money was a measure of accomplishment. Instead
of using his profits for the pursuit of pleasure, he plowed
them.back into productive enterprises as he expected.his
companies to do. The goal was to add to the empire, not
accumulate money.

To describe a man like Mellon is difficult for he is

so foreign to what most people know and comprehend. How

303

could a man be oblivious to wealth and power; yet he was.
His career in Washington was indicative of that. Having
reached the pinnacle in business and finance, he came to
Washington seeking a new world to conquer, to meet a dif-
ferent challenge. Government service was a poor way to
make money and a violation of his own adage, ”It is always
a mistake for a good business man to take public office."5
His work-oriented mind was demonstrated in his Treasury
career by his frequent twelve and sixteen hour days, vaca-
tions coming only after business was completed and Congress
adjourned. His lack of a craving for power, and a devotion
to principles, was exhibited in his willingness to remain
in the Hoover Cabinet even though he knew his role would be
secondary.

If one accepts the description of Mellon as essentially
a honest, responsible, work-oriented man, as opposed to the
more traditional money-dominated, unscrupulous character
who misused.his office for personal aggrandizement and that
of his friends, one is likely to come to a different set of
conclusions than those expressed by most historians. The
picture drawn thus far is of a complex individual with cer-
tain driving forces, but not inclined to fit the moldjof a
particular stereotype. As Robert Weibe has shown, in his

study of businessmen and reform, the businessman of the

5Quoted in George Harvey, Henr Cla Frick The Man
(New Yerk: Charles Scribners and Sons, {923), p. 295.

 

301+ _
turn of the century could not easily be classified, and in
that respect, Andrew Mellon was no exception.6

Bearing this in mind, let us examine the four basic
elements of his Treasury career: the domestic debt, foreign
debts, taxation, and depression.

In the area of the domestic debt, one can readily see
the conservative banker, Like all bankers, he had an ab-
horrence of debt be it public or private. His disdain was
probably stroner than most, for his business policy had been
to expand facilities by plowing profits back into the firm
rather than floating bond issues. The service charges on
the debt undermined.his economy program.and the sooner that
it was retired the better. When he assumed office, the
interest bearing debt stood at approximately $2h billion.

By the end of fiscal 1931, the level was lowered to $16
billion, a reduction about one-third of the total in ten
years, and with a proportionate decline in carrying charges.

The idea of lowering the gross national debt, then as
now, is inextricably tied to a belief economy in government,
a guiding light to Mellon and Coolidge in particular.
Parallel with debt retirement was budget reduction, and the
two parties vied in 1928 over which one could do it best.

No one in the Twenties was critical of these twin concepts,

virtues if you will, though there were some grumblings

 

1 6Robert W; Weibe, "Business Disunity and the Progres-
s ve Movement, Mississippi Valley Historical Review XLIV
(March, 1958) , 6W. '

305
later in the decade that the debt was being diminished
faster than was necessary. Economy in government has al-
ways stood in the American mind as sacred as the flag.

In his dealings with the foreign debts, one finds a
somewhat enlightened banker. The thrust of his argument
was that the obligations should be paid, they were legally
and morally binding, and yet he realized that a sound
Europe was more important to America than full payment
at 5% interest. An enlightened banker recognizes when to
foreclose and when to extend the mortgage date. He never
acceded to the Coolidge ”They hired the money, didn't
they?” attitude. He promoted a capacity-to-pay fonmula
by adjusting interest and time for payment.

That dictum.placed him.between Hiram Johnson, William
E. Borah, and the like, who demanded full payment, and
others like Walter Lippmann who believed the principal of
the debts should be adjusted or perhaps forgiven completely.
His middle of the road position brought criticism.from.both
sides, not praise for the wisdom of Solomon. Given the
tenor of the times, that most Americans hoped for full pay-
ment and that some of their powerful representatives on
Capitol Hill were demanding such, something like a capacity-
to-pay formula was the best option available. Most today
believe that the debts, along with reparations, should.have
been cancelled, but that is hindsight, not a recognition of
the domestic and international realities of the times.

In the realm of taxation, Mellon did his best to lower

306
taxes on the rich, but not to shift the burden to the poor.
The attempt was to minimize the cost of government, and to
provide a commensurate reduction of taxes for the middle
and upper classes in an expending economy. He would have
included the lower class too, but they did not pay federal
income taxes.

An examination of taxation from.the perspective of a
half-century should not be colored by the problem of space
age taxes. The burden of taxation today is heavy because
of defense spending and the expectation of much.more from
our government in domestic activities, with the emphasis on
the former. Commenting on the development of federal taxa-
tion since Mellon, Gabriel Kolko wrote:

Contrary to common belief, heavy taxation
of upper-income groups did not begin with the
advent of the New Deal: it began only with
the approach of United States involvement in
Werld War II. Higher income taxation came as
a response of the Roosevelt Administration to
world events and not as a result of a conscious
commitment to a social policy of reducing in-
equalities in the distribution of wealth.

Before 1931, the New Deal practice on
personal-income taxation was, despite differ-
ences in verbiage, essentially a continuation
of that of the Hoover.Admin1stration. In 1929
and l9h0, when national personal income was al-
most the same, Federal receipts from persona
income taxes were virtually identical. . . .

In the Twenties, the burden was lighter, relatively speak-

ing, but fell amost entirely on a small group of people.

 

7Gabriel Kolko,‘Wealth and Power in America (New York:
Fredrick A. Praeger, I962), pp. 55-31.

307
In 1928, for example, 2.h million people paid federal in-
come taxes. Of that group, just over 2 million people paid
$32.8 million, while 365,000 people paid $1.1 billion.
This was after Mellon received.his scientific rate, and one
can see that the burden, light as it may be compared to
today, was falling not on the poor or the little man, but
on the shoulders of a small, select group at the top of the
ladder. The rich may pay a larger proportion of their in-
come to the government today, but to what group has the
burden since l9hl really fallen?

Mellon also believed in the nineteenth century philosophy
of all men having a stake in their government and that tax-
ation would provide that stake. If more people paid even
a small sum, the twofold function of providing a stake in
in government and a more stable income tax would be met.

At no thme did.he advocate shifting the burden through a
regressive measure like the sales tax, a popular panacea
with many in the business community and higher brackets.
When President Hoover called for high taxes in 1931 to right
the unbalanced budget, the chief executive suggested a
substantial increase in the upper brackets. Mellon, he said,
replied: "That is not enough," implying that the rich.must
pay evenzmore.8 He did support indirect taxes some of which

fell heaviest on the poor like cigarette taxes, but he also

 

8Herbert Hoover, The Memoirs of Herbert Hoover, Vol.
III, The Great Depression (New Yerk: The Macmillan Co.,
1951'E2,, P. E56.

308
unsuccessfully advocated ones on automobile sales, stock
purchases, and bank checks, levies that struck the middle
and upper groups.

Where Mellon and his colleagues can be faulted in the
area of economy, debt retirement, and lower taxes is in
the fact that the public was asking more of its government
and the federal establishment did not respond. The state
governments did, and it was indirectly through the increase
in state and local taxes and debts that Mellon shifted the
burden to the little man. To pay for increased services,
especially roads, state governments raised property taxes
and some instituted sales taxes and other indirect, regres-
sive levies that came down hardest on the lower income
groups, especially farmers.

The last thing,.Mellon's reaction to the depression,
illustrates an instance when his nineteenth century ideas
were thoroughly dated and inapplicable. They were poor
but tolerable responses in the nineteenth century; in the
new era, they were disastrous. To say that the problem was
overproduction in the face of hungry people and consumer
interest in manufactured goods, and that America had to
wait until production and consumption righted.themselves,
was no answer. Even Hoover, in many respects a figure of
the old era, realized that government needed to do some-
thing to stimulate production and consumption even if that
sommthing was only no-business business meetings. Mellon

°°11fipsed when his traditional approach proved untenable.

309
At a.minimum, the times called for a man more in step
with Hoover, Mellon was not that man, nor was Ogden Mills.

Again, what has been concluded here is somewhat dif-
ferent than.the traditional. The picture is that of an
honest, hardaworking man, dedicated to a particular set of
ideas, concepts and beliefs. Though the validity of those
beliefs is debatable, Mellon nevertheless accepted than
and acted accordingly. To interpret and evaluate within
the frame of different beliefs is to do a disservice to the
man and history. The question to be avoided is right or
wrong: the issues at hand are not conducive to moral judg-
ment.

Andrew'Williameellon was not the best choice as Secre-
tary of the Treasury and much of what he did has been la-
mented by later generations. Simply holding the position
as he did was a violation of the most primitive definition
of a conflict of interest. To describe massive contribu-
tions to a campaign like giving to a church must conjure
visions of a man with a strange set of values. Strange they
were, something from another age. Though not the best
choice, the options available offer little solace to some-
one who ‘would prefer to have seen the Twenties develop dif-
ferently. As long as things went well, the public agreed
with him, some idolizing his figure. When the economy
sickened,the feet of clay were exposed and the public felt

duped. Historians like anyone else tend to remember

310
someone for the last image they convey. In this case, let
us try to expand that image and view the whole man, not
just the broken form.that‘Wright Patman hounded from the

citadels of power.

BIBLIOGRAPHICAL ESSAY
PRIMARY SOURCES

The most important research source when writing bio-
graphical or semi-biographical studies such as this is the
man's personal papers. Unfortunately, Andrew W. Mellon's
private papers are being held by his heirs who informed
this writer that they had no plans for releasing them in
the foreseeable future. Because of this, a full length
biography is precluded, but a study of his governmental
career is possible.

Lacking personal papers, the researcher must approach
his subject in a different fashion. Instead of beginning
with the central figure and working outward, one must strike
out from the peripherey and burrow inward. This is not the
ideal methodology, but can be an acceptable and productive
process. Joseph Brandes in his study of Herbert Hoover as
Secretary of Commerce, Herbert Hoover and Economic Diplomagy
(Pittsburgh, 1962), presented the academy with an excellent
volume, though the Hoover papers were unavailable to him.
Since then, the Presidential Library at West Branch, Iowa
has been opened to researchers and Mr. Brandes's work has
gone unchallenged. This approach to Mellon has, in many
respects, been patterned after what Brandes did and hopefully

311

312
it will withstand the passage of time as well.

The laborious process of examining, understanding, and
evaluating the Secretary of the Treasury ”under whom three
Presidents served” has been made considerably easier by four
characteristics of the man: thoroughness, frankness, con-
troversiality, and a willingness to delegate authority. His
business mentality, adapted to government service, has

caused the Official Correspondence of the Secretary of the
Treasury, Andrew W. Mellon,_Secretary, 1921-1932, Recopg

Group 56I General Records o{_the Treasury Department, National
Archives, to be the epitomy of business-like thoroughness.

 

 

Found in the 2&1 boxes are files from acceptances for public
engagements to the world court issue, with matters ranging
from.the coal situation in Central Europe, to segregation of
employees, to letters of introduction in between materials
on all fiscal, monetary and financial questions that per-
tained directly or indirectly to the operation of the Trea-
sury and the varied duties of the Secretary. A listing of
subject headings is available. Information was retained
according to subject headings (they remain in their original
form untouched by editors), but with carbons in a variety

of files in which the item.might be of some interest.

The Annual Report of the Secretary of the Treasury,
1921-1931, published each December for the use of Congress,
is an ideal companion volume for the Official Correspondence.
Also a very business-like document, the épppgl Report

served as a vehicle for the Secretary to explain or elaborate

313
upon policies and procedures undertaken by his department.
Reprints of legislative correspondence and important public
statements by the Treasury chief are included. During the
Harding and Coolidge years, thelpppual Report was very com-
plete and liberally sprinkled with personal opinion. The
last three reports continued the practice of thoroughness,
but avoided personal commentary and judgment. The annual
statement of the Commissioner of Internal Revenue and.the
Director of the Prohibition Bureau are also found in the
Apnual Report, and each Report of the World'War Foreigp
‘pebt Commission, 1922-1926, is reprinted.

These two sources could have been very bland and unin-
formative were it not for Mellon's frankness and contro-
versiality. Essentially an honest and forthright individual,
the Secretary was very frank in expressing himself, particu-
larly in his yearly report to Congress. The practice ex-
tended to what personal materials remain within the Official
Correspondence, and enhance the value of letters and inter-
office memoranda fromhhis subordinates who apparently were
infected by the same type of candor. His controversiality,
his numerous clashes with the legislative branch and certain
individuals and interest groups, led to the maintenance of
complete files on any subject that might be the subject of
public debate. The folder on his eligibility to hold office
is a classic example of a collection of data that touched
upon ever conceivable aspect of the case. The fact that

Mellon was controversial, combined with his concern.that

31h
his opinion by properly known and understood, is a further

assist to the researcher in that he released much of his
correspondence to the newspapers and provided regular press
releases on current affairs. Though this writer has seen
most of the originals, the system.in this essay has been

to cite the most available source, thus the frequent refer-
ences to the New Yerk Times or Annual Report rather than
Official Correspondence.

The Secretary's willingness to delegate authority adds
another dhmension to his official papers. Although.his
personal letters were segregated, those of the Under-
Secretaries and Assistant-Secretaries were kept. Because
policy was often formed on these lower levels and Mellon
was prone to accept the advice of his three Under-Secretaries,
these holdings are of inestimable value. The correspondence
of these men, followed by memoranda to their superior, which
in turn were frequently translated into policies, programs
or opinions, or passed on to the White House, illustrates
an interesting cause and effect relationship. His business
policy had been to surround himself with capable men and
supervise their activities from a discreet distance, a
practice he continued in Washington. The proliferation of
duties assigned to the Secretary of the Treasury and
Mellon's regular attendance at public functions like Cabinet
meetings indicate that someone beyond himself'must have been
doing most of the work. The only organized and available

source of an immediate subordinate are the Private Papers of

315
Ogden Mills in the Manuscript Division of the Library of
Congress. They are a useful adjunct, but most important
items can be found in the Treasury records, his frequent
public statements and speeches, and his two books,
Liberalism.Fights On (New Ybrk, 1936) and The Seventeen
Mellion (New Ybrk, 1937).

Other manuscript collections of figures immediately
around or involved with Mellon are valuable, particularly
those of the three Presidents with whom he worked. ‘Tpp
Presidential Papers of Calvin Coolidgp, Manuscript Division
of the Library of Congress and microfilm, were found to be
of modest value as its contents were often available else-
where. The Presidential Papers of Herbert Hoovpp at the
Presidential Library in West Branch, Iowa were not exten-
sively used and provided little insight. For the most part,
the Memoirs of Herbert Hoover (3 vols., New York, 1951-52)
and secondary sources sufficed. The uncatalogued papers of
Warren Harding, Ohio Historical Society, Columbus, Ohio,
were not consulted, though as in the case of the Hoover
Papers, will be before venturing beyond the interpretations
of this essay.

Deposits of other personal memorabilia provide addif
tional materials. The Diaries and Index-Digest of Charles
S. Hamlin, Manuscript Division of the Library of Congress,
are extremely useful for observations of Federal Reserve
Board activities by a member. Because of the legibility of
the writing, the Index-Diggst, copiously drawn by an

316
unknown friend, has been cited. The sources have been
cross-checked with the Diaries, but this writer refrained
from.refering to the original because of an inability to
accurately read them, Some authors use the original, but
the practice has been to rely on the Index-Digest. The
papers of Mellon's archsenemy, James Couzens, are also in
the Manuscript Division of the Library of Congress and are
helpful for the Senator's opinions, but most of their ex-
changes were in the newspapers.

Beyond the official records and the collections of
private papers, there are the Secretary's own publications.
Such things as his ”Our Best Customer," Saturday Evening
‘gppp (June 19, 1926) on foreign debts and the tariff,
”Government Finances and Taxation in l927,"Worlds Work
(January, 1927). ”What I am Trying to Do," Worlds Work
(November, 1923) on the public debt, and ”The Business of
Taxation," Fpppp (March, l92h) are illustrative of his
penchant for an occasional article directed to a specific
point. However, his articles were usually an expression in
layman's terms of something he had already said in official
dealings and have only minimal usefulness. As one might
expect, most of his publications dealt with government
financee and his ideas on the subject were drawn together
into book form, Taxation, the People's Businepp (New York:
l92h). Expressing Treasury opinion was normally handled by
one of his assistants, especially Ogden Mills, but this

writer has been wary in his use of them.for many of’the

317

underlings were of an independent mind, and one cannot al-
ways be certain that Mellon fully agreed. In all publica-
tions, there is a certain repititiousness, a constant
hammering on certain themes and ideas that tends to bore,
but this was an effective way of being sure that his atti-
tudes were well understood.

Government documents provide additional research tools.
The gppgressional Record is the traditional vehicle for
legislative expression. More intimately related to Mellon
is the transcript of his trial for tax evasion, the Official
Report of the ProceedinggBefore the United States Board 0;
Tax Appeals, A.W. Mellon v. the Commissioner of Internal
Rgvenue, Respondent, at the Bureau of Internal Revenue.
Included in the 10,000 pages is the testimony of the ex-
Secretary, and.his references to his childhood and deve10p-
ment as a businessman are particularly beneficial. Three
Congressional investigations supply a variety of information.
The Hearings before the Special Committee Investigating ‘
‘Egppnditures in the Senatorial Primarygand General Election
(U.S., Congress, Senate, 69th Congr. 1st Sess., pursuant
to Sen. Res. 195, June 9 to July 7, 1926) contains material
pertinent to the Vare-Pepper primary and the broader issue
or the Secretary's role in Pennsylvania politics. The
Couzen's investigation, Hearings before the Select Committee

on the Investigation of the Bureau of Internal Revenue
(U.S., Congress, Senate, 68th Cong., 2nd Sess., pursuant to

318
Senate Resolution 168, l92h-25) casts light on the Mellon-
Couzens feud and the operation of the Internal Revenue
Bureau. A careful reading gives the researcher some idea
of the complexity of tax enforcement, particularly diffi-
cult in these first years of the income tax, and makes one
suspicious of the charges of illegal refunds. The record
of the Patman investigation, prpgpgs beforp_the Committee
on the Judiciapyyof the House of Representatives (U.S.,
Congress, House, 72nd Cong., 1st Sess., on House Resolution
92, January 13-19, 1932), contains all of the documents per-
taining to the question of Mellon's eligibility to hold
office, provides some insight into his selection for the
Secretaryship, and expresses most of the negative arguments
used against him for over a decade. Thwarted by Mellon's
removal to England, Wright Patman compiled all of his charges
in book form, Bankeneering, Bonuseering, Melloneering
(n.p., l93h).

An unusual, but interesting and informative source is
the Harvey O'Connor Collection, Labor History Archives,
Wayne State University. Mr. O'Connor is the only writer
to attempt a full biography of Andrew Mellon, Melloan
Millions (New York, 1933) and his papers afford a view of
his research materials and notes.

Autobiographies, recollections, and memoirs of people
who knew Mellon or worked with him.are plentiful. The most
important of the autobiographical materials is that of his
father, Thomas Mellon and his Timpp (n.p., 1885). Except

319
for what was said in the tax trial, this is the basic
source for Andrew Mellon before he left for Washington.
Because of its candid approach, it is tremendously useful
in understanding the development of the Secretary and many
of his actions in office, particularly his response to the
depression. His father's memoirs are handsomely complimented
by those of’his nephew, William.Larimer Mellon, Ju e
Mellon's Sons (n.p., l9h8). W.L.Mellon had access to the
private papers and expressed his uncle's viewpoint. Though
obviously defensive and biased, a careful reading can garner
important information and insights. Unfortunately, the
Secretary's political lieutenant said little of their polit-
ical involvement.

Similar sources include the recollections of Harry
Daugherty, The Inside Stogy_of the Harding Tragedy (New York,
1932). The one-time Attorney-General emphasized.his role
in selecting Mellon for the Cabinet, clahming all credit as
he did in most everything related to Harding. Senator
Walter Edge's A Jerseyman's Journal (Princeton, l9h8) and
Will Hays's recollections The Memoirs of Will Hgyp (Garden
City, 1955), Postmaster-General and Republican Chairman,
proved commentary of the Treasury selection and the 1928
Republican convention. Senator James E. Watson, As I Knew
Tppp (Indianapolis, 1936) also discussed Mellon's political
suicide in 1928. The Secretary's role in Pennsylvania
politics is included in George Wharton Pepper, Philadelphia
Mr, An Autobiograplg (Philadelphia, 19141;), William S. Vare,

320
My Forty Year's in Politics (Philadelphia, 1933), and
Joseph Guffey, Seventy Years on the Red Fire Wagon (n.p.,
1952). Guffey was a leader of the Democratic Party in the
Keystone State and the son of a former Mellon business
partner in the oil industry. All three books are defensive
and highly critical of Mellon and his machine. David F.
Houston, Wilson's Secretary of the Treasury, supported the
idea of continuity in department policy in his Eight Years
in the Wilson Cabinet ( 2 vols., Garden City, 1926). A
consistent foe of Mellon; Cordell Hull, provides a taste of
the Congressional wing of the Democracy in his Memoirs of
Cordell Hull (2 vols., New York, l9h8). The rememberanoes
of Budget Director and Vice-President, Charles Gates Dawes,
The First Year of the Budget Bureau 0; the United States
(New York, 1923), and Notes as Vice-President, 1928 (Boston,
1935) are helpful in understanding Treasury policy formation
and the human side of the Secretary. Irwin H. Hoover,
Forty-Two Years in the White House (Boston, 193k), doorman
at the executive mansion, produced some interesting but
questionable recollections of the Secretary, especially with
reference to the 1928 campaign and his resignation in 1932.
Onetime Pittsburgh newspaperman Gilbert Sildes, Tell the
Truth and Run (New York, 1953) offered some observations
on Mellon's private life and is practically the only source
on.his divorce. A fellow journalist, Henry Stoddard,‘ép_l_
Knew Them (New York, 1927) presented a brief picture of the

Harding-Mellon relationship.

321

The last of the primary sources are the newspapers.
As a newspaper of record, the New Yerk Times enables the
researcher to determine day to day activities and contains
all public statements, with public letters, speeches and
most press releases printed in full. Though naturally
shy, the Secretary was reputed to have a very good rapport
with newsmen in their weekly off-the-record conferences.
These sessions were for background information and quoting
was prohibited, as was attributing information to the
Secretary. The consequence was frequent references to
”informed Treasury sources” and such statements must be
weighed very carefully and cross-checked with later.mate-
rials that unmistakeably bear the imprint of the Secretary.
The editorial opinion of the New York Times usually sup-
ported the Treasury, but did depart occasionally from the
party line as in the case of its advocacy of a sales tax.
The St. Louis Post-Dispgtch and New York World usually ex-
pressed Democratic Party opinion and were fairly consistent
in their opposition, even after the Congressional Democrats
moved to out-Mellon Mellon. The Washington Post, owned by
Eugene Meyer, a Hoover appointee to the Federal Reserve
Board, served as something of an organ of the administration
and regularly adhered to Treasury policies. Varied news-
paper opinion on numerous issues was provided by the
ALiteraryDigest, a unique magazine whose polls on the

Mellon Plan and prohibition were very helpful.

322
SECONDARY'SOURCES

Besides Judge Mellon's Sons, two other books have been
written on Andrew W. Mellon. Phillip Love penned Andrew
Mellon, the Man and his Work (Baltimore, 1929) as a testi-
monial to a hero. Rumored to have been published as a
campaign biography should the Secretary have chosen to run
for the presidency in 1928, the effort was poor, with most
of it composed of lengthy quotations from.apeeches and
antecdotes of questionable authenticity.

When the Pittsburgh banker became the subject of ex-
tensive criticism.after the crash, Harvey O'Connor capital-
ized on a ready market with his Mellon's Million,_the
Biography of a Fortune,thefiLife and Times of Andrew W.
Mellon (New York, 1933). O'Connor, a longtime labor writer,
produced a left-wing interpretation, lacking any sense of
objectivity and prone to accepting as truthful any source
critical of his subject. His research was copious, but his
use of the sources is suspect. It has value in that it is
representative of what a great many thought of Mellon in
the Thirties, and to a great degree is responsible for his
niche in history. Like Judge Mellon's Sons, it can serve
some useful purposes if judiciously read and evaluated
against other sources.

Several magazine articles on Mellon are also available.
There is a cumulative effect in these articles with each

rehashing the materials of its predecessors and adding a

323
few bits of its own. The most recent installment was the
three part Fortune article "The Mellons of Pittsburgh”
(October-December, 1967). Most of Charles J.V. Murphy's
energies went into the business aspects of the family, with
part one devoted to the formation of the financial and in-
dustrial empire by Thomas Mellon and.his sons Andrew and
Richard. Only passing reference was made to the Secre-
tary's governmental service. Three Newcomen Society pub-
lications, Roy A. Hunt, The Aluminum.Pioneers (Princeton,
1951), Sidney Swensrud, Gulf Oil, the First Fifty Yoars
(Princeton, 1951), and Frank R. Denton, The Mellons of
Pittsburgh (Princeton, l9h8) supply additional business
insights. Craig Thompson, Since Spindletqp (n.p., 1951), an
official history of the Gulf Oil Corporation, and Charles C.
Carr, Alcoa, An American Enterprise (New York, 1951),
another official company production,.are book length
complements to the above sources for understanding Mellon
as a businessman. A contemporary and apparently authorized
article, ”My Brother and I,” Worlds Work (March, 1932), by
William P. Beazell, is helpful in understanding Andrew
Mellon's business methodology, and was the only authorita-
tive source available on his corporate activities until
19h8. Except for academicians and a few brief newspaper
articles on the hundredth anniversary of’his birth in 1955,
the above represents the total published output on Mellon
since his death in 1937. The family's drive for anonymity

has been rarely violated.

321+

A great many Journalistic appraisals appeared during
the Treasury years, with.most of them.coming during Mellon's
public relations campaign of 1930-31. A flurry of laudatory
articles that said little beyond praising the man and his
programs included: Lucius Beebe, "Mellon, Coressus and
Corinthian,” Outlook (February, 1931); Albert W. Atwood,
”Mr. Mellon,” Saturdgy_Evening¥Post (May 7, 1932): Theodore
Joslin, "Andrew W. Mellon, Dean of the Cabinet,“ Worlds
W235 (January, 1930), and Will Irwin, ”Andrew Mellon Stripped
of His Mystery,” American Magazine (July, 1930). ‘Walter
Davenport's ”A Day with Andrew Mellon,” Cdlliers (March 29,
1930) offers an insight into the operation of the Protestant
work ethic on the Secretary. The best popular account of
the Secretary, however, appeared during the fight over the
Mellon Tax Plan. John K. Barnes drafted “What Manner of
Man is Mellon1', Worlds Work (March, l92h), with.help from
sources close to the man. The Barnes article was the first
significant look at the enigma of the Treasury and formed
the core for later revelation. Other praiseworthy articles
include Mercer Vernon, "Introducing Mr. Mellon," Outlook
(November, 1923) and Silas Bent, ”Andrew W. Mellon,”
Scribes (January, 1928).

There are almost no negative accounts of the Treasury
chief. This is not to mean that he did not have critics,
but that his apposition devoted their attacks to particular

issues rather than examining the broad sweep of the man.

325
Exceptions to this rule are "Andrew Mellon,” New Republic
(March an, 1926), by Frank Kent and ”Andrew W. Mellon,
Secretary of the Treasury,” Current History (July, 1931),
by Clinton W. Gilbert. New Republic and Nation maintained
a steady strewn of editorial criticism and were inclined
to publish hostile stories, particularly those of Frank
Kent and Paul‘Y. Anderson, Washington correspondents for
Dmmocratic newspapers. No journal took it upon itself to
consistently defend the Secretary, though Worlds Work was
inclined to accept pro-Mellon reports.

The periodicals of the Twenties are very valuable for
surveying attitudes toward Mellon and his policies, particu-
larly those put out by interest groups. The articles vary
in value and fluctuate considerably as to whether they are
of a primary or secondary nature. A survey of them is imp
possible and the reader is directed to footnotes for these
source materials.

All of the general historians of the Twenties mention
Mellon, but the coverage is usually limited to a few para-
graphs at most. Their references are invariably to his tax
policy, with an occasional note on the domestic debt. These
sources can be divided into two groups, the critical ones
and those somewhat friendly. There are no sympathetic
treatments.. A bleak picture of Andrew Mellon, plutocrat,
the Secretary of the Treasury who tried to shift the burden
of taxation from.the rich to the poor can be found in the

326
following works: Arthur Schlesinger, Jr., The Crisis of
the Old Order (Boston, 1957); Smmuel Hopkins Adams,
Incredible Era: The Life and Tunes of Warren G. Harding
(New Yerk, 1939); Fredrick Lewis Allen, ley4¥esterday
(New Yerk, 1931); Jonathan Daniels, The Time Between the
Wg£§_(Garden City, 1966); Karl Schriftgeisser, This Was
Normalcy (Boston, 19h8); Elizabeth Stevenson, Babbitts and
Bohemians (New Ybrk, 1967): John D. Hicks, Republican
Ascendengy (New Ybrk, 1960); George Soule, Prosperity Decade
(New York, 19h7); William.Leuchtenberg, The Perils of
Prosperity (Chicago, 1958); Harold U. Faulkner, £3192
Versailles to thegNew Deal (New Haven, 1950); David Shannon,
Between the Wars (Boston, 1965); and Bruce Minton and John
Stuart, The Fat and Lean Years (New York, l9h0). Those
somewhat friendly to the Secretary include: Theodore
Grayson,‘Leadersgand Periods of American Finance (London,
1932); Stuart Hclbrook, The Age of Moguls (Garden City,
1953), particularly useful for a glimpse of Mellon as an
atypical robber baron; Edmund Lowry, Washington Close-Ups
(Boston, 1921); Mark Sullivan, Our Times, Vol. VI, The
Twenties (New Ybrk, 1935); Oscar Barck and Nelson Blake,
Since 1900 (New York, 1959); and Leland Baldwin, Recent
American History (New Ybrk, 195M). Three books that devote
more than a page or two are Robert S. Allen and Drew Pearson,
washington Merry:Co-Round (New Yerk, 1931) and More Merry:
Go-Round (New York, 1932), and‘Walter Lippmann, Men of

327
Destiny (New York, 1927). All are hostile to the subject,
but do provide useful information, particularly on Ogden
Mills's eclipse of his superior.

Biographers afford several pictures of Mellon. George
Harvey's Henry Clay Frick, The Man (New York, 1928) describes
the Pittsburgh banker first steps into politics. The atti-
tude of a sympathetic Democratic Senator who once served
at the Treasury comes through in Rexey Smith and Norman
Beasley, Carter Glass (New York, 1939). The Insurgent '
Republican estimate can be found in Bella Case LaFollette
and Fola LaFollette, Robert M. LaFollette (2 Vols., New
‘York, 1953): M. Nelson McGeary, Gifford Pinchot,_Forester-
Politician (New Haven, 1960); Howard Zinn, LaGuardia in
Congress (Ithaca, 1958); and Harry Barnard, Independent Man:
The Life and Times of Senator James Couzens (New York,
1958). The view of a Democratic Congressional critic is
expressed in Bascom.N. Timmons, Garner of Texas (New York,
l9h8). Like the broader studies, these include only
snatches of the Secretary that must be woven together.

The chronicles of the three Presidents offer the most
detailed descriptions of Mellon and his programs. While
resurrecting warren Harding in his Available Man (New York,
1965), Andrew Sinclair brings along the Treasury chief as
well. William.Allen White, A Puritan in Babylon (New York,
1938) created the image of a Calvin Coolidge dominated by
his subordinate, a view muted by Claude Feuss, Calvin

Coolidge (Hamden, Conn., 1939) and Donald McCoy, Calvin

328
Coolidge (New Ybrk, 1967). Richard Fenno, The President's
cabinet (Cambridge, 1966) has reassessed Mellon's role,
pushing him.into the background behind Charles Evans Hughes
at the State Department. Herbert Hoover lacks a biographer,
but Harris Gaylord Warren, Herbert Hoover and.the Great
Depression (New York, 1959), is antagonistic to the Secre-
tary and contradictory in places. Another approach to the
same subject, Albert U. Romasco, The Poverty of Abundance
(New Yerk, 1965), dismisses Mellon as Hoover did, a
liquidationist with no constructive ideas.

The major issues of the Twenties in which the Treasury
had an interest have received varied treatment. 0n taxation,
Roy G. and Gladys C. Blakey, The Federal Income Egg (London,
19h0) is the standard reference, a narrative that avoids

interpretation. Roy G. Blakey also wrote an analysis of
leach revenue act for the American Economic Review. Companion
volumes are Taxation in the United States (Boston, l95h) by
Randolph E. Paul and Taxation and_pemocracy in America

(New York, 19h2) by Sidney Ratner. These two offer evalua-
tions, and Ratner in particular is critical of Mellon's
policies. Gabriel Kolko's Wealth and Power in America (New
York, 1962) adds a new dimension from a New Left point of
view. Though not directly related to taxation, but an
asset for understanding the economic issues and the under-
lying philosophies is Joseph Dorfmann, Thg_§conomic Mind in
(American Civilization, Vols. IV'& V (New York, 1959), a

penetrating analysis.

329

As for debts, the only attempt to study the domestic
debt has been Henry G. Hendricks, The Federal Debt, 1919-
'1239_(Washington, D.C., 1933). Discussion of the foreign
debt becomes inextricably entwined.with a great many other
matters including reparations and tariff. Benjamin'Willimms,
Economic Foreign Policy:gf the United States (New York,
1929) offers limited coverage. Both phases of the debt
are volatile areas subject to varied opinions, but lacking
in historical analysis and ripe for enterprising scholars.

Prohibition is an oft discussed by sparsely researched
subject. The two basic accounts, Charles Merz, Dry Decade
(Garden City, 1930) and Andrew Sinclair, Prohibition, the \
Era of Excess (Boston, 1962), are essentially friendly to
Mellon, but their examination of enforcement policy is
sketchy at best. The latest publication, The Dr Years,
Prohibition and Social Change in Washington (Seattle,

1965) by Norman Clark falls back to the stereotype of Mellon
the liquor dealer who cared not to enforce prohibition.

The Federal Reserve system.has been intensely studied
from an institutional standpoint. The operation of the
Board and policy formation is discussed in Harold H. Reed's
Federal Reserve Poligy (New Yerk, 1930) and A. Jerome
Clifford's The Independence of the Federal Reserve Sygggg
(Philadelphia, 1965), but the role of the individuals
involved is secondary. Lester Chandler's Benjamin Strong,
Central Banker (Washington, D.C., 1958) is an excellent

330
source for the development of the Board's internationalist
policies.

Other matters in which the Secretary of the Treasury
was involved or interested but lack significant secondary
sources include the beautification of Washington, the ques-
tion of public construction before the New Deal, tax-
exempt securities, the tariff, the Republican Party, and
the fight for the soldier's bonus among others, Biographers
of many of the major figures are woefully needed. The
Twenties are still a wasteland desperately in need of
scholarly investigation.

The direction of this bibliographical essay has been
to provide the reader with some insight into the source
materials. No effort was made to comment on every item.in
the footnotes or every reference consulted but not cited.
To do so would overwhelm and bore, as well as attempt to
compete with such excellent works are Burl Noggle's ”The
Twenties: A New Historiographical Essay," Journal of
American Histopy, LIII (September, 1966) and the first rate
bibliographical essay contained in William.Leuchtenberg's
Perils of Prosperity (Chicago, 1958).

To study Andrew W. Mellon and.his Treasury career is
to comb the primary sources, particularly newspapers and
periodicals. Beyond the Presidents, he was the most public
of the public figures of the decade. Most of the secondary

materials provide only bits and pieces that must be woven

331
together, and even then the gaps are immense. If the
reader is stimulated by this essay to further examine the

Secretary, he should turn to the footnotes and seek his

clues there.

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