-Caveat Lector-

an excerpt from:
The Founding Fortunes
Michael Patrick Allen©1987
All rights reserved.
E. P Dutton
ISBN 0-525-48484-1
-----
An excellant and interesting book.
Om
K
--[4]--


THE MELLON FAMILY

Of the three big dynasties, certainly the least well known is the Mellon
family. This relative obscurity is somewhat paradoxical in light of the fact
that the Mellons are, without much doubt, the wealthiest of these three
families. Unlike most other corporate rich families, whose fortunes stem
primarily from their investments in a single company or industry, the Mellons
have been major stockholders in a number of otherwise unrelated firms. They
were once major stockholders in Gulf Oil Company, and their principal
investments still include large stockholdings in such major corporations as
Aluminum Company of America, Mellon National Bank, Koppers, General
Reinsurance, and First Boston Corporation. This diversified fortune was
compiled by two brothers, Andrew W. and Richard B. Mellon. In the words of
David E. Koskoff, a family biographer, they made "one of the most unlikely and
one of the most successful partnerships in history." They were as unlike in
appearance as they were in temperament: A. W. Mellon, the older of the two,
was thin and extremely shy, whereas his brother, R. B. Mellon, was stocky and
gregarious. According to this same biographer, "about the only thing the two
seemed to have in common was their incessant acquisitiveness." They may have
inherited this trait from their father, Thomas Mellon, a Pittsburgh banker
whose firm, T. Mellon and Sons, would later form the nucleus of the presentday
Mellon National Bank. Using the modest fortune amassed by their father as a
foundation, A. W. and R. B. Mellon went on to accumulate several fortunes of
their own.

The Mellon brothers started out as bankers, but they soon became venture
capitalists as well. Whenever an especially promising company came to T.
Mellon and Sons for a loan to finance expansion, the Mellons would also buy a
large block of stock in the company. By virtue of their position as both major
creditors and principal stockholders, they were usually able to exercise
control over these companies. In this manner, the Mellon brothers amassed
their first real fortune in a new industry: aluminum. In 1889, Andrew W.
Mellon was approached by a group of investors representing the Pittsburgh
Reduction Company, a firm formed to exploit a newly developed process for
refining aluminum. T. Mellon and Sons extended the firm, later to be renamed
the Aluminum Company of America, a line of credit, and A. W. Mellon purchased
some stock in the company. The Mellons gradually increased their stockholdings
in the growing firm from about 12 percent in 1894 to over 26 percent by 1917.
Although both Mellons served as directors of the company, they left the actual
management of the firm to others. As the company increased its control over
the burgeoning aluminum industry, the Mellons increased their control over the
company. By 1937, the Mellon family controlled 35 percent of the common stock
of Aluminum Company of America, as well as 24 percent of its preferred stock,
worth a total of $72 million in the depressed stock market of the period.

The accumulation of a fortune in aluminum was but a prelude to the
accumulation of an even larger fortune in oil. In 1901, James M. Guffey, a
veteran oilman, came to T. Mellon and Sons for a loan to continue his drilling
operations near Beaumont, Texas. Later that same year, using money lent by the
Mellons, Guffey and his associates brought in the first major oil well in the
state of Texas. However, they soon needed more money to develop the field and
to construct a pipeline for transporting the oil. In order to raise the
necessary capital, the Mellons organized the J.M. Guffey Petroleum Company,
which acquired the interests of Guffey and his associates in the new field.
Andrew W. and Richard B. Mellon also bought 13 percent of its stock. In the
years that followed, they helped the company finance the construction of an
oil refinery on the Gulf Coast and new exploration activities in Oklahoma.
However, Guffey soon demonstrated his limitations as a manager, and the Mellon
brothers were forced to send their cousin, William L. Mellon, to Texas in
order to restore the company to profitability. During this period, Guffey
borrowed heavily from the Mellons, pledging his stock in the company as
collateral. In 1907, the Mellons reorganized the J.M. Guffey Petroleum Company
and its affiliates as the Gulf Oil Company. They also increased their
stockholdings in the new company, largely by canceling their loans to Guffey
in exchange for the stock they held as collateral. By 1939, the Mellon family,
including William L. Mellon, controlled 70 percent of the common stock in Gulf
Oil, worth $240 million.

Although Gulf Oil and Aluminum Company of America were to become the
cornerstones of the Mellon family fortune, the "incessant acquisitiveness" of
the Mellon brothers led them to invest in a number of other promising
companies as well. While they were consolidating their control over Gulf Oil
and Alcoa, Andrew W. and Richard B. Mellon were also investing heavily in
several other large corporations including Koppers, a chemical firm;
Carborundum, an abrasives company; and Pullman, the railroad car manufacturer.
Their 52 percent stake in Koppers alone was worth $37 million by 1939. In most
cases, the pattern of investment and control was the same. The Mellon brothers
began by lending money to small companies in need of capital for expansion.
However, they often bought enough stock in these companies to become their
controlling stockholders. They then asserted active control over these firms,
serving as directors and appointing capable and trusted associates as
managers. In 1902, T. Mellon and Sons itself was converted, through a series
of mergers with affiliated banks and trust companies, into Mellon National
Bank. The Mellon brothers emerged with 42 percent of the stock in the new bank
holding company. They also owned all of the stock in both Mellon Securities
and Mellon Indemnity, two companies that had been investment and insurance
affiliates of Mellon National Bank.

Having succeeded in amassing one of the most monumental fortunes in American
history, the Mellon brothers soon set about safeguarding it from the estate
taxes. For example, Andrew W. Mellon created Coalesced Company and Richard B.
Mellon created Aloxite Corporation as family holding companies in order to
transfer most of their assets to their children. By the time he passed away in
1933, Richard B. Mellon had already given the bulk of his stock in the various
Mellon enterprises to his two children, Richard K. Mellon and Sarah Mellon
Scaife, Nevertheless, he left an estate of about $86 million, the bulk of
which, after payment of relatively modest estate taxes, was divided equally
among his wife and children. Perhaps because he had served as the secretary of
the Treasury in three consecutive administrations, Andrew W. Mellon knew more
about estate taxes and how to avoid them. When he died in 1937, he left an
estate of only $37 million, all of which he bequeathed to a family foundation.
Of course, he had already transferred the bulk of his stock in the Mellon
companies to his two children, Paul Mellon and Ailsa Mellon Bruce. Because the
Mellon brothers were equal partners in most of their business ventures, their
children inherited almost equal fortunes. By 1939, Richard K. Mellon and Sarah
Mellon Scaife were worth $156 million in the stock of just three companies:
Gulf Oil, Aluminum Company of America, and Koppers. Their cousins, Paul Mellon
and Ailsa Mellon Bruce, were worth $136 million in the stock of these same
three corporations. These two branches of the Mellon family also held large
blocks of stock in several other enterprises such as Mellon National Bank,
Carborundum, and Pullman.

With the passing of the Mellon brothers, the task of overseeing the extensive
investments of the family fell largely to Richard K. Mellon, the son of
Richard B. Mellon. He was not only the eldest of the four wealthy Mellon
cousins but also the only one to show any interest in business or the affairs
of the Mellon companies. After flunking out of Princeton his first term there,
R. K. Mellon went to work for his father at Mellon National Bank, where he
became a vice president when he was only twenty-nine years old. When his
father died four years later, he took over as president. He later resigned
that post, but he never lost interest in the Mellon companies. He continued to
serve as a director of Gulf Oil, Aluminum Company of America, Koppers, and
Mellon National Bank for many years. Moreover, his involvement with these
firms was far from passive. When a reporter asked him about his occupation, he
once replied, "I hire company presidents." Although he was actively involved
in the redevelopment of downtown Pittsburgh, R. K. Mellon actually lived at
Rolling Rock Farms, an 18,000 acre estate near Ligonier, fifty miles outside
the city. When he died in 1970, he left an estate of over $226 million. He
bequeathed half of it to his wife, and the other half to his Richard K. Mellon
Foundation. In this way, all of it escaped federal estate taxes. The bulk of
his fortune had been transferred into a series of massive trusts for his
children many years earlier.

        The only Mellon in a position to challenge Richard K. Mellon
as the head of the Mellon financial empire was his equally wealthy
cousin, Paul Mellon. As the only son of Andrew W. Mellon, he had
been encouraged from an early age to enter business, but he was never able to
generate much enthusiasm for the mundane details of finance and industry.
After graduating from Yale, where he became known primarily as a poet, he went
on to Cambridge. On returning to Amer-ica, Paul admitted to reporters, "there
are other members of our family who are far more fitted than I am to look
after the family interests." Nevertheless, he kept a promise he had made to
his father and went to work for Mellon National Bank. Within a couple of
years, Paul was a director of several of the Mellon companies. After his
father died, however, Paul gradually resigned all of his directorships and
turned over his business affairs to a staff of financial advisers. He then
retired to Oak Spring, his 4,000-acre estate  near Upperville, Virginia. The
estate also houses Rokeby Stables, a highly successful horse-breeding
operation. In addition to breeding and racing thor-oughbred horses, he has
gained considerable attention as an art collec-tor.  In 1967, Paul gave most
of his collection of English art, valued at over $35 million, to Yale
University. He threw in another $10
million to build a special museum to house the collection. Paul has yet to
part with his collection of French impressionist and postimpres-sionist art,
which is undoubtedly the biggest and best collection in private hands.

Richard K. Mellon and Paul Mellon controlled only half of the fortune left by
their fathers. The other half was held by their sisters. Sarah Mellon, the
sister of Richard K. Mellon, married Alan Scaife, the scion of an established
Pittsburgh family. Over the years, he served as a director of several Mellon
companies and foundations. By all accounts, Sarah was intelligent but
extremely shy. As one of the richest women in the world, she became accustomed
to being cared for by servants. According to her own daughter, "she did not
know how to cook; she couldn't drive." Although she devoted the requisite
amount of time to her art collection and her philanthropies, Sarah found more
pleasure in entertaining and traveling. When she died in 1965, she left $66
million to her Sarah Mellon Scaife Foundation. Ailsa Mellon, the sister of
Paul Mellon, married David K. Bruce, a young foreign service officer. Soon
after their marriage, Ailsa Mellon Bruce was stricken by an undiagnosed
illness that rendered her, in the words of her husband, a "semi-invalid." They
were eventually divorced, and David Bruce went on to a distinguished
diplomatic career. After the divorce, Ailsa became almost a recluse. At one
time, she owned three apartments in New York, two houses in Connecticut, an
estate on Long Island, and a residence in Palm Beach. Ailsa apparently took a
great deal of interest in her philanthropies and her art collection, much of
which she donated to the National Gallery of Art. When she died in 1969, she
left the bulk of her estate, valued at $570 million, to her Avalon Foundation.
This foundation was later merged with two smaller foundations established by
her brother to form the giant Andrew W. Mellon Foundation.

At this point, much of the Mellon fortune is in the hands of the six
grandchildren of Richard B. Mellon and the three grandchildren of Andrew W.
Mellon. On the Richard B. Mellon side of the family, perhaps the wealthiest
members of this generation are the two children of Sarah Mellon Scaife. Her
son, Richard M. Scaife, is a newspaper publisher, but he has gained prominence
primarily for his political largesse. A conservative Republican, Richard
Scaife has given roughly $144 million of family money to various political
organizations. The other members of this branch of the Mellon family include
the four children of Richard K. Mellon. They control the massive Richard King
Mellon Foundation, and one of the sons, Seward Prosser Mellon, serves as a
director of Mellon National Bank. On the Andrew W. Mellon side of the family,
Ailsa Mellon Bruce had only one child, Audrey Bruce Currier. Under the
tutelage of her husband, Stephen Currier, she became an early financial
contributor to the civil, rights movement. Both of the Curriers were lost at
sea aboard a private airplane in 1967, and their three children are now the
sole beneficiaries of several substantial trusts. Paul Mellon, the brother of
Ailsa, has two children. His son, Timothy Mellon, has gained notoriety
recently by buying three marginal railroads for $44 million in order to create
Guilford Transportation, a railway system with over 2,500 miles of track in
six Northeast states. Catherine Mellon, the daughter of Paul Mellon, married
and eventually divorced John Warner, who later married and divorced the
actress Elizabeth Taylor.

Not all members of the Mellon family are rich. Among the descendants of Thomas
A. Mellon, only two of the brothers, Andrew W. and Richard B. Mellon, were
brought into the bank. The two other brothers became wealthy, but they did not
amass great fortunes. Consequently, their descendants must contend with the
disadvantages of the Mellon name without the advantages of the Mellon wealth.
The only exceptions are the children of William L. Mellon, the nephew of A. W.
and R. B. Mellon. William Mellon served his uncles well when he went to Texas
in 1902 to manage and oversee their investments in the burgeoning oil
industry. He was eventually made chairman of Gulf Oil and accumulated a
relatively small block of stock in the company. By 1937, his 4 percent stake
in Gulf Oil was worth over $12 million. It was a small fortune by Mellon
standards, but it was enough to provide for his four children. One of them,
William L. Mellon, Jr., astounded other members of the family when he
announced that he had decided to follow the example of Albert Schweitzer. He
sold his ranch in Arizona and went back to school, at age thirty-seven, to
become a doctor. After his graduation from Tulane University Medical School in
1953, he and his wife moved to Haiti, where they built a hospital for the
poor. Altogether, the descendants of William L. Mellon, Sr., may now be worth
as much as $300 million.

Over the past several decades, the Mellon fortune has become increasingly
diversified as the family has sold much of their stock in the original Mellon
companies and reinvested the proceeds in other stocks, bonds, and real estate.
Nevertheless, the vast bulk of the Mellon fortune can be traced to large
family stockholdings in Gulf Oil. In 1937, the 70 percent of Gulf Oil stock
owned or controlled by the Mellons was worth $240 million. In the decades that
followed, however, the Mellons gradually disposed of much of this stock
through a series of public offerings and countless private sales. In the six
secondary offerings of Gulf Oil held by the Mellons since 1943, family members
sold Gulf stock worth over $350 million. As a result, by the time of the last
public offering in 1972, the Mellons and their foundations had reduced their
stake in Gulf Oil to about 21 percent. If the proceeds from these stock sales
were subsequently reinvested in diversified portfolios of stocks and bonds,
they would now be worth at least $1.1 billion. This total excludes, of course,
the stock portfolios of the various Mellon foundations. By 1984, when Gulf Oil
was acquired by Chevron, members of the Mellon family probably owned no more
than 12 percent of the company, for which they received at least $1.5 billion
in cash. This is the latest in a series of cash infusions received by the
Mellons. For example, family members received roughly $150 million between
1951 and 1961 for their stock in Alcan Aluminum, which they were forced to
sell a's the result of an antitrust settlement. Similarly, the Mellons
received over $100 million for their remaining 20 percent stake in Carborundum
when it was acquired by another company in 1978.

Although the Mellons have systematically diversified their investment
portfolios, some of the original Mellon companies still constitute part of the
family fortune. For example, the Mellons have kept much of their stock in
Aluminum Company of America. The only public stock offering by the family
occurred in 1972, when several family members and foundations sold about a
third of their stake for $96 million. At present, the Mellons probably own
about 17 percent of the stock in Aluminum Company of America, worth close to
$500 million. Similarly, the Mellons have retained almost all of their stock
in Mellon National Corporation. As the result of recent mergers, the Mellons
now probably own no more than 23 percent of the stock in Mellon National,
worth about $350 million. The Mellons also own about 10 percent of Koppers,
currently worth $60 million. In general, the four cousins held roughly equal
shares in the various Mellon companies but there were a few notable
exceptions. As the result of an exchange of stock within the family in 1933,
Richard K. Mellon and Sarah Mellon Scaife wound up the sole owners of two
family financial companies, Mellon Indemnity and Mellon Securities. In 1946,
these two companies were merged into General Reinsurance Company and First
Boston Corporation, respectively. As a result of these mergers, the heirs of
Richard K. Mellon and Sarah Mellon Scaife currently own about 6 percent of
First Boston and 4 percent of General Reinsurance. Altogether, these two
investments are now worth just over $210 million.

Although the Mellons no longer exert active control over their companies,
family members or their advisers continue to serve as directors of such major
corporations as Aluminum Company of America, Mellon National, Koppers, General
Reinsurance, and First Boston. The only entity capable of coordinating the
financial affairs of the family at present is Mellon National Bank, whose
trust department still administers much of the family fortune. Foundations
endowed by members of the family are also large stockholders in many of the
original Mellon companies. The largest of these foundations is the Andrew W.
Mellon Foundation with assets of $816 million in 1981. The only two other
large Mellon foundations are the Richard King Mellon Foundation, with assets
of $357 million in 1983, and the Sarah Scaife Foundation, with assets of $112
million in 1981. Family members and their associates serve as trustees and
officers of these foundations. As a rule, however, the Mellons now prefer to
be passive investors. As one of the younger Mellons put it, "in families like
ours what life becomes is holding on to what you've got." So far, the Mellons
have succeeded in holding on to the bulk of their fortune. The stock in the
original Mellon companies still owned by the family is now worth $1.1 billion.
In addition, their proceeds from various stock sales, after appreciation, come
to over $3.2 billion, most of this from their Gulf Oil stock. Last but not
least, family members have received at least $2.1 billion in dividend income
since 1937 from their stock in Gulf Oil, Aluminum Company of America, and
Mellon National alone. Altogether, the Mellons are now worth at least $6
billion.

CONTINUITY AND CHANGE

There can be little doubt that the three major dynasties of a half century ago
are still alive and quite wealthy today. Indeed, their massive fortunes have
appreciated greatly over the decades, although perhaps only enough to keep
pace with inflation. Even today, however, only a handful of corporate rich
families control as much wealth as the Rockefeller, du Pont, and Mellon
families. Income and estate taxes have, of course, taken their toll on these
fortunes, but they have hardly eliminated them. The continuity of these
fortunes over the past several decades is largely attributable to the fact
that these families did not hesitate to employ elaborate legal strategies to
avoid these taxes. In particular, the members of corporate rich families often
resorted to the creation of generation-skipping trusts. They also created
family holding companies to avoid estate taxes and consolidate the
stockholdings of family members, although most of these holding companies were
dissolved once they had served their purpose. In general, parents employed a
variety of legal maneuvers to transfer much of their wealth to their children
and grandchildren long before they died. Only after their heirs were provided
for did they bequeath their residual estates to family foundations. In this
way, they were able to avoid estate taxes and keep the last remains of their
wealth under family control. As a result, these families now exercise enormous
social and political power by virtue of their control over large family
foundations.

The most significant consequence of the historical evolution of corporate rich
families has been the change in their relationship to those companies that
were the original sources of their fortunes. The Rockefellers long ago severed
their ties with the various Standard Oil companies and have concentrated their
attention in recent years on Rockefeller Group, the family holding company for
their real estate and broadcasting properties. Similarly, although various
members of the du Pont family remained actively involved in management of Du
Pont Company until relatively recently, they are now content to have several
family members serve simply as directors. Last but not least, the Mellons, who
only rarely became involved as managers of the companies they controlled, have
family financial advisers represent them as directors. As a rule, these
families have largely relinquished the management of the family firms to
others, although family members and their financial advisers often continue to
serve as directors. Nevertheless, the current investment strategy among these
three corporate rich families is clearly one of diversification. Stock in the
original family companies has gradually been sold, and the proceeds have been
reinvested in diversified portfolios that contain a combination of growth
stocks for long-term capital appreciation as well as municipal bonds for tax-
free income.

The fortunes of these three dynastic families and the relationships of these
families to their companies have been altered in the past several decades
largely as a result of fundamental transformations in their structures as
families. They are larger and more complex as kinship groups than ever before.
In the past five decades, two new generations of family members have reached
maturity. In the late 1930s, the du Pont clan consisted of a few aging
siblings and scores of adult cousins. Today, it is now a clan comprising well
over a hundred adult members, most of whom are only first and second cousins
to one another. Similarly, the Mellon family once consisted primarily of four
cousins who were still young adults. It now comprises primarily a few second
and third cousins. In the Rockefeller family, there were only six young
siblings and their father. Currently, most of the Rockefellers are first
cousins. Despite the large size of these families and the remoteness of their
kinship ties, family members have managed to maintain a strong sense of family
unity, largely because of their common economic interests. These kinship ties
are also reinforced by a number of shared institutional arrangements involving
family investment offices, family trusts, and family foundations. However,
these family ties become more tenuous with each successive generation. Indeed,
as these families have developed into large and complex clans, they have
become divided into a series of smaller and more cohesive branches. Of course,
none of the younger members of these families will ever be as rich as their
parents because, with the passing of each generation, their family fortunes
have been redistributed among a larger number of family members.

Despite these differences between these families, which stem from differences
in their size and complexity as kinship groups as well as differences in the
composition and distribution of their fortunes, the individual members of
these families have led very similar lives. In particular, the members of each
successive generation of family members have confronted similar situations and
problems. To begin with, the children and many of the grandchildren of the
entrepreneurs who amassed these family fortunes were sent to the most
exclusive private schools. Later, they attended elite private universities,
even though they did not always graduate. By and large, the members of the
second and third generations of these families also married well. With only a
few notable exceptions, most of them married the scions of other wealthy and
socially prominent families. In short, the implicit agenda for members of the
second generations of these families involved the accumulation of cultural and
social capital commensurate with their economic capital. Although the same
expectations existed for members of the third generation as well, they were
much less urgent. Finding themselves at or very near the pinnacle of wealth
and status in American society, the members of subsequent generations have
been content to draw on the social and cultural capital, as well as the
economic capital, amassed by their parents and grandparents. They have
sometimes shunned the most exclusive prep schools and colleges and married
individuals from families that were neither especially prominent nor wealthy.

pps. 32-62
-----
Aloha, He'Ping,
Om, Shalom, Salaam.
Em Hotep, Peace Be,
Omnia Bona Bonis,
All My Relations.
Adieu, Adios, Aloha.
Amen.
Roads End
Kris

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