-Caveat Lector-
an excerpt from:
Mellon's Millions
Harvey O'Conner�1933
Blue Ribbon Books
New York, N.Y.
--[15]--
15
The Billionaire
ANDREW MELLON'S fortune kept pace with his rising prestige in those luscious
Third Decade years which he devoted to public affairs. Business leaders spoke
praisefully of the sacrifice he was making in devoting his shrewd mastery of
finance to the national benefit, but one tabulation of the corporations in
which his family was interested showed an increase in assets from
$1,690,000,000 in 1920 to $6,091,000,000 in 1928. Critics said that he had
profited from the information available to a Secretary of the Treasury
concerning the financial status of his competitors.
In but four corporations and four banks, the majority of whose income flowed
into the family's pockets, dividends soared from a mere $6,950,000 in 1920 to
$24,686,000 eight years later. This did not include those Mellon corporations
so closely held that it was unnecessary to reveal their earnings to a curious
public, or a score of large companies for which the Mellon banks were
financial agents.
Assets of four of the family's firms rose�between the inaugurations of
Harding and Hoover�from $428,000,000 to $952,000,000 These figures did not
include Standard Steel Car and McClintic-Marshall whose financial reports
were made known only to their few stockholders, and Pittsburgh Coal,
Pittsburgh Plate Glass, Crucible Steel, in which the family held large blocks
of stocks and bonds. Money on deposit in the Mellons' four largest banks
advanced in that period from $229,000,000 to $351,000,000. The Pittsburgh
bankers indisputably were a billionaire family.
Around the solid core of Gulf, Aluminum, Union Trust and Koppers were
clustered newer Mellon companies and interests. Definitely Mellon in control
were Eastern Gas and Fuel Associates, newly formed $200,000,000 corporation,
Brooklyn Union and Brooklyn Borough Gas, Duke-Price Company. Mellon interests
became powerful in the $600,000,000 Pullman companies, in $700,000,000
Bethlehem Steel, in $1,250,000,000 United States Electric Power Corporation,
in the companies represented by United Light & Power, United Light &
Railways, American Light and Traction, valued at a billion, in the
$300,000,000 Westinghouse companies, in the $800,000,000 Niagara Hudson
Corporation. Their voices were heard in the $2,000,000,000 Pennsylvania
Railroad, in the $140,000,O00 American Rolling Mill Company, and the
$375,000,000 Philadelphia Company, which controlled Pittsburgh's public
utilities.
The Mellon fortune was likened to a snowball which grew automatically merely
by obeying the law of gravity. If in one year McClintic-Marshall was sold to
Bethlehem Steel, and definitely regarded as outside the Mellon orbit, a few
years later it was noised about that the Mellons had become the largest
stockholders in Bethlehem and were preparing to take charge of the country's
second largest steel corporation. If Standard-Steel Car was sold to the
Pullman interests, it was discovered later that the Mellons had become
powerful in the sleeping car monopoly.
In this they were aided both by the profits inuring to shrewd manipulators of
corporate finance, and by the dire distress into which many firms fell during
the collapse that marked the end of the jazz Decade. Merely by adroit
investments of not too many millions, the Mellons held 30 per cent control of
the voting stock of the $575,000,000 United Light & Power Company. While such
an investment in a holding corporation lacked the solidity of the family's
millions in Aluminum and Gulf, nevertheless it added astonishingly to its
total wealth. By 1932 it appeared that the Mellons' own stake in various
financial and industrial corporations was more than $2,000,000,000. Their own
share of the profits of these industrial companies in 1929 was $91,146,168
and even in the depression year of 1930 they could report a tidy slice of
$47,909,582. Their share in dividends from industry and banks was accounted
at $35,651,527 in 1929, rose to $36,435,999 in 193o, and was still at the
respectable figure of $33,683,068 in 1931. Whatever the crisis was doing to
the weak, certainly the Mellons found it a ripe period in which to intrench
themselves.
"Really, I am a poor man," Andrew Mellon once said. But when the lid was
tipped on income tax returns in 1924-25, over his most vehement protests, he
was shown to be in no danger of applying to the poor board. For the fiscal
year 1922-23, he paid $1,173,000 to the Government, indicating a taxable
income of $3,000,000 to $4,000,000. In the next fiscal year of open returns,
his tax rose sharply to $1,882,000, the levy on $4,000,000 in taxable income.
Brother Richard's payments increased suddenly from $348,000 in 1922-23 to
$1,180,000 in 1923-24. Nephew William Larimer Mellon's tax was $225,000 for
the first year and $I 74,000 a year later. Lumped together, the three returns
indicated a taxable income of about $8,000,000 in 1923-24. The Bureau of
Internal Revenue did not of course profit from the 300 per cent stock
dividend declared by Gulf in 1922. The Mellons' share in the stock dividend
was $59,760,000.
When analysts presented figures dealing with the gross profits of Mellon
concerns, it was found that few except the richest powers on earth could
report such an inflow of wealth. In 1929, nine so-called Mellon firms
reported gross profits of $230,000,000.
In the banking field, Union Trust could report that it had paid out in
dividends in its forty years of existence a round sum Of $50,000,000 and that
another $63,500,000 had been placed in surplus. Its dividend rate was 200 per
cent a year, reputedly the highest bank return in the country. At Christmas
it doled out a 6 per cent dividend as a mere tidbit. Shares were quoted at
$20,000 each.
In their own corporations, the thrifty sons of Thomas Mellon contented
themselves with dividends modest in comparison with earnings. After interest
and other fixed charges were met, the remainder was tucked away in surplus
funds, safe from the tax collector's grasp. Gulf alone accumulated
$39,719,399 in surplus in 1929 not to mention a tidy $44,500,000 in profits.
The majestic surplus funds of Mellon corporations gave them stability in hard
times and in good times prevented the Bureau of Internal Revenue from making
too heavy inroads on profits from the "well doing" which Grandfather Andrew
had started on the little farm 20 miles from Pittsburgh.
The public was not permitted to gratify its curiosity by further peeps into
Mellon tax payments after 1926. The curtain was drawn decently across tax
returns when Congress enthusiastically approved the Mellon Plan in that year.
The sharp decline in the surtax rates from 65 per cent, when Andrew Mellon
went to Washington, to the 20 per cent of the Mellon Plan, shielded the
family from exorbitant federal raids. If the 1923 surtaxes had been in effect
in 1929, the Mellons would have been obliged to give up at least $5,000,000
even after the Bureau of Internal Revenue had made every allowance permitted
under the intricacies of its practices. Actually the Mellons probably paid
about $2,000,000 Looked at from any angle, the $2,000,000 was cheap insurance
for the protection of those practices by which the fortune was leaping from
mere hundreds of millions into the thousand millions.
Nowhere were the benefits of the Mellon fiscal policy more clearly observed
than in taxation on Gulf Oil Corporation. The 65 per cent maximum excess
profits tax in effect when Secretary Mellon assumed his duties in the
Treasury Department would have meant at least a $20,000,000 levy in 1929.
Actually the 12 per cent corporation tax could take, at the most, only
$5,340,000 on net profits of $44,500,000. Exemptions allowed by the Bureau of
Internal Revenue on depletion and other accounts undoubtedly sliced the tax
well under $5,000,000.
So although Secretary Mellon told a Congressional committee that so far as
his companies were concerned he "died" when he entered the Treasury, the
spirit of his tax policy lived on, benefiting them and all corporations.
Perhaps his reports of his own corporate "death" were slightly exaggerated,
for he continued to keep a tight rein on his aluminum, oil, steel and banking
organizations. Their financial programs, their plans for expansion, the
advancing of major executives, all were subject to his veto. His training in
his father's cool school of finance kept the Mellon corporations from being
involved in those grandiose schemes that marked the final years of the jazz
Decade.
During Mellon's incumbency of the Treasury, Aluminum, oldest of his
industrial enterprises, advanced splendidly to higher profits and wider uses.
Aluminum railway cars, half the weight of steel cars, radically reduced
hauling costs, and assured sustained speeds of go miles an hour. A bright
future beckoned to aluminum street cars, particularly in hilly cities and in
interurban service.
Electrochemists, emerging from their laboratories to address fellow
scientists, predicted that the Age of Aluminum would supplant the Iron and
Steel Age by 1942. "The one metal," said Professor Colin G. Fink of Columbia,
"to enter the widest variety of new fields will be aluminum-for railway
equipment, roofs and buildings, food containers, transmission, airplanes,
tank cars, pipes lines, fencing and similar products." A new aluminum plate,
he reported, was "superior in many respects to tin plate." He foresaw
aluminum bridge and skyscraper beams which two men could lift.
Professor Fink pointed to a weighty factor favoring the light metal. "Whereas
the supply of raw material for many of our metals is comparatively limited in
years, the supply of bauxite, or aluminum ore, is almost limitless. For
example, whereas copper, at the 1929 rate of consumption, will last but forty
to forty-five years, the aluminum ore reserves will satisfy our demands for
many hundreds of years."
The rocket-like rise in airplane production kept Mellon mills busy. The
probability of dirigibles spanning oceans and waste spaces foretold a market
for thousands of tons. A sixth of the output was used for electrical
transmission. By 1930 aluminum adorned nearly every new skyscraper and was
specified by federal architects employed by the Treasury Department for
public buildings. Rockefeller's Radio City ordered 3,000,000 pounds to cover
a sixth of the exterior surface of ten buildings.
In more prosaic spheres, aluminum expanded from use in pots and pans, to
washing machines, phonographs, radios, sweepers and countless labor-saving
devices. An aluminum watch weighing less than an ounce betokened a new use.
Aluminum paint brightened bridges. Automobiles used castings, pistons, and
connecting rods of aluminum, and quantities went into other parts to lessen
dead-weight.
Engineers grumbled that the metal could replace steel for nearly every
purpose where speed and lightness were demanded, if the price, pegged at 22.9
cents a pound, could be brought down to more reasonable levels. The Mellons
however had not the slightest intention of lowering the price under a point
consistent with a steadily growing market. With an admirable sense of
business realities, they obliged manufacturers and builders to pay tribute
for the privilege of using the indispensable metal over which they had gained
monopoly power.
Undoubtedly Aluminum was a triumph of American business enterprise. It owned
all the commercially available bauxite on the two Western continents, and
shared control if not outright ownership of those in Europe. Its Aluminum
Line carried the raw material from the Guianas to New Orleans and the
Saguenay. The Government-owned Mississippi River Barge Line then took the
bauxite to East St. Louis. Its own railroad transferred it from there to the
Aluminum Ore plant. Its smelters, making use of all the suitable water power
resources of the United States, reached all markets, foreign and domestic.
Coal mines, street railways, marine railways, commissary and realty companies
were part of the vast set-up.
None of the common stock of this $250,000,000 firm reached the public,
although investors were permitted to buy $6,855,000 of the preferred,
released from the estate of Inventor Hall, and $60,000,000 in 5 per cent
bonds. Net income that hovered between $15,000,000 and $20,000,000 a year was
justified by the monopoly on the officially stated ground that it had
conferred upon mankind the blessing of developing an important metal in one
generation, whereas copper had been worked since 3700 B.C. and other metals
for relatively long periods. Full and free competition existed, contrary to
general belief. If aluminum, company spokesmen argued solemnly, competed with
no other business enterprise, it competed with gravity, inertia, corrosion,
electrical resistance, beat and absorption, as expressed in other metals.
In 1928 the Canadian and foreign properties were segregated into a. new firm,
Aluminium, Ltd., incorporated in Canada. Its common stock was distributed
among the holders of Aluminum Company of America, and $13,000,000 in
preferred and $20,000,000 in bonds sold to the public. Forty subsidiaries
were listed under Aluminium, in Canada, England, Norway, Italy, Germany,
Switzerland and India. No longer could the Department of Justice or a federal
judge hold that the old Northern Aluminum Company, with its price and
production agreements with the European cartel, was an agent of Aluminum. The
new company was completely independent, so far as the forms of the law went,
and its agreements to divide the world with the European producers were none
of Washington's business.
Carborundum. Company was a minor aluminum. The Mellons financed E. G.
Acheson, who discovered the electrolytic process for making the new abrasive
stone in 1890, shortly after Charles Hall developed the aluminum process.
Carborundum quickly advanced in popularity for grinding wheels and other
abrasive purposes, joined Pittsburgh Reduction at Niagara Falls and by 1930
counted its assets at $21,565,000 and its net working capital at
$16,icio,ooo. The Mellons held control.
The Mellons staked out claims to another metal�magnesium, a fourth the weight
of steel and two-thirds that of aluminum. Its possibilities have captivated
the imagination of engineers and scientists for a generation and recent
discoveries in Germany have advanced the electrolytic process by which it is
made. Aluminum Company of America gained from I. G. Farbenindustrie A.-G. of
Germany the rights to exclusive American use of its patents and processes.
Thus the Mellons bid fair to stand unrivaled among the monopolizers of metal.
Sir Alfred Mond cornered the nickel market, but Aluminum's profits made
International Nickel's seem second-rate. And now a rising generation may have
to pay toll to the Pittsburgh bankers for the privilege of using another
triumph of metallurgical art, when magnesium develops its industrial uses.
Neither of the Mellon brothers paid much attention to Aluminum's day-by-day
development. Their wizardry in metals comprised the transmutation of aluminum
into gold, but not bauxite into aluminum. Such problems, and the guidance of
the corporation's routine, were the province of Arthur V. Davis, the small
real estate speculator of the eighties, whose rise to fortune had been
entwined with that of Judge Mellon's sons. As was usual in the Mellon manner,
Davis was richly rewarded, and the new aluminum city of the
Saguenay�Arvida�was named for him.
Aluminum's spectacular rise in assets from $75,000,000 in 1921 to
$250,000,000 in 1929, was paralleled on an even more impressive scale by Gulf
Oil's increase from $272,000,000 to $761,000,000. The enterprise built on
Lucas' Spindletop gusher now towered over all other Mellon corporations.
Probably no other company of that size in the country was so strictly a
family possession. If all their other possessions had been stripped away from
them, its owners would still have been among the nation's Upper Dozen
multi-millionaires. Through Gulf's treasury in one year passed $257,000,000,
and its net working capital of $100,000,000 would have dazed the Founder of
the fortune.
Gulf Oil had no fewer than 5,400 wells in production, with a capacity of
178,000 barrels a day. In 1931 Gulf could boast production of 65,000,000
barrels of oil. Its 7,000 miles of pipe lines could carry 200,000 barrels a
day. Thirty-seven tankers transported the liquid from Venezuela and Port
Arthur to the Atlantic seaboard. The refined products were sold through 3,000
service stations owned or controlled by Gulf itself, in addition to thousands
of others.
Small wonder that Standard Oil of Indiana, lacking foreign sources, looked
covetously upon what a financial writer described as a "typical Mellon
property, large, rich, profitable, discreet, self-sufficient." In 1920 Gulf
earned $79 a share and quotations on its stock rose to $560 in 1922, before
the Mellons declared a 200 per cent stock dividend, which brought
capitalization up to $108,000,000. Standard of Indiana offered five of its
shares, market value of $110 each, for one of Gulf's, quoted at $500, but the
Mellons, hard bargainers, held out for $800 a share, or $228,000,000. If
Standard advisers thought that too high, they have reflected seven years
later that the Smithfield Street bankers, like Andrew Carnegie, had
underestimated the potentialities of their company.
In another triumph of what Philander C. Knox termed "dollar diplomacy" the
Mellon company gained a share in the Mosul oil fields, described as "one of
the most promising areas for oil development in the world." Mosul's oil was a
cause of the World War, a principal cause of the Greco-Turkish War of 1922, a
dominant factor in the troubled history of the semi-independent Arab states.
Secretary Hughes, fighting manfully for the principle of the "open door,"
opened the way for Standard Oil to gain a quarter interest in the Turkish
Petroleum Company, in which British oil companies held the majority of stock.
The four Standard Oil companies which shared the quarter interest formed the
Near East Development Corporation.
Gulf Oil was not to be ignored in any division of the spoils won by Secretary
Hughes, and the Mellon company accordingly obtained a one-fifth interest in
Near East Development, and President Davison was named vice president. Futile
it was for Armenian nationalists to argue that the United States, champion of
Armenian rights during the World War, had sacrificed them in return for a
slice of Iraq oil. Specifically, 1,000,000 Armenians, it was charged, were
expelled from their homes by the Treaty of Lausanne, which celebrated the
entry of American oil companies into Turkish Petroleum. Secretary Kellogg
ignored Armenian protests that Attorney Hughes of Standard Oil and Secretary
Mellon dictated the State Department's Turkish policy.
Gulf scouts never ceased their search for cheap oil. They checker-boarded
promising territories in the, Southwest, and roamed the American continents.
Gulf sank a million dollars in dry holes in Panama, and then shipped the
machinery to Colombia for use in the Barco concession.
In the retailing end, lawyers were kept busy fighting suits brought by
dealers and state authorities charging Gulf and other majors with unfair
trade practices. In 1914 Standard Oil and Gulf were indicted by a New Jersey
grand jury on charges of cutting prices from 22 cents a gallon to 10 cents,
to freeze out smaller competitors. In 1923 the Federal Trade Commission had
Gulf and other majors before the U. S. Supreme Court to answer charges that
they installed pumps and tanks on condition that no competitors' products be
used.
Texas was the most persistent foe. Attorney-General Dan Moody in 1926 sued
Gulf and Atlantic (Standard) for $50,000,000 for oil and gas taken illegally,
he said, from public lands. As usual in such cases, Moody got nowhere. His
successor, Attorney-General James V. Allred, asked that Gulf and fourteen
other oil companies be driven from the state for persistent violation of the
state's anti-trust law. When President Amos L. Beaty protested that policies
allegedly in restraint of trade had been sanctioned by the Federal Trade
Commission, Allred retorted that the commission "has no authority to approve
or authorize any violations of the anti-trust law in Texas." "This is not the
first time," said this apostle of state's rights, "that a bunch of
representatives in high federal office have approved violations of the law.
The looting of Teapot Dome was accomplished with the approval of federal
authorities. In my judgment, if the Federal Trade Commission had been
performing the duties placed upon it by law, they would have been prosecuting
the defendants rather than encouraging them as they have in this instance."
The Texas attorney-general alleged that the big companies had bought up
nearly all the 18,000 independent filling stations in the state and had fixed
prices by tacit agreement. Gulf had acquired 2,653 stations. The agreements
by which competition was stifled and prices fixed came under a Code of
Practices, which, it developed, the new Federal Trade Commission of Calvin
Coolidge's overhauling had approved in 1929. The Texas official asked damages
of $17,850,000 for violations of the state's anti-trust act. He proposed to
have the court attach the companies' property in satisfaction, and to annul
their charters to do business within the state. It was all quite futile, of
course.
So high were Gulf Pipe Lines earnings and those of other pipe line companies
in the crisis year of 1931 that the Texas railroad commission threatened to
reduce their rates as much as 68 per cent to bring earnings down to the legal
8 per cent maximum. Gulf's takings led all others, the commission's report
stated.
At Cincinnati, independent dealers early in 1933 filed another of those suits
in federal court charging Gulf and the other majors with fixing the retail
price of gasoline below the wholesale, to force out their small competitors.
These sought safety under the anti-trust act, even though that law seemed
headed for history's dustbin under the "New Deal."
Gulf, as usual, played more or less a lone hand, in the "constructive
efforts" being made by petroleum's moguls to bring some semblance of order
into the industry. It could afford to. With untold reserves of the cheapest
oil in Venezuela and Colombia, it could watch the writhings of independents
like Marland who were dependent exclusively on United States oil. One by one
Marland and the others would drop by the wayside. The Rockefeller and Mellon
companies would pick the bones for whatever flesh remained. In good times
their profits would be gigantic�Gulf's ran to $44,500,000 in 1929�and in hard
times they could call on their enormous reserves to buy out distressed
properties for a song.
The resignation of Colonel J. Frank Drake as chairman of the board of
Pullman, Inc., early in 1931 to assume Gulf's presidency, brought to public
attention the Mellons! powerful position in the sleeping car monopoly.
Colonel Drake had always been a Mellon man. He had served for years as
assistant to W. L. Mellon and later he was vested with the presidency of the
Mellons' Standard Steel Car Company.
In 1929 Standard Steel Car was Pullman's only serious competitor in the
manufacture of railway cars. Its plants could produce. 60,000 freight cars a
year to Pullman's 44,500, while Pullman shops had a capacity of 1,800
passenger cars to the Mellons' 1,050. Standard Steel Car plants at Butler,
Pa., Baltimore, St. Paul and Hammond supplemented Pullman's huge works.
Standard's La Rochelle plant could turn out 150 dining, sleeping and
passenger cars yearly for Continental railroads and another plant at Rio de
Janeiro served Brazil.
Standard Steel Car was merged with Pullman in 1930 in a deal which brought
$50,000,000 in cash and Pullman stock into the Mellon coffers, a fair return
on an original $3,000,000 investment. The Mellons received $21,067,000 and
500,000 shares in Pullman, Inc., stock. President Drake of Standard became
chairman of the Pullman board, and with him sat Richard King Mellon, son, and
Alan M. Scaife, son-in-law of Richard B. Mellon. There they rubbed elbows
with J. P. Morgan, George F. Baker, Harold S. Vanderbilt and Alfred P. Sloan,
Jr.
On the face of 1930 figures, the merger was highly profitable to Pullman
stockholders, for earnings from the merged manufacturing properties jumped
from $6,161,000 in 1929 to $12,419,000 in 1930. The share of the dividends
accruing to the Mellons was $2,185,000, which reimbursed them for at least
half the cash they had ever put into Standard Steel Car. It was a glowing
tribute to the effectiveness of cooperation rather than competition on the
industrial field.
Thus proceeded the liquidation of that ambitious Mellon-Frick steel empire
which arose out of Frick's anger at Carnegie in 1899, and had included Union
Steel, New York Shipbuilding, Standard Steel Car, and McClintic-Marshall.
Union Steel had been sold back in 1903 to the Steel Corporation in as
brilliant a deal as Andrew Mellon ever consummated. New York Shipbuilding was
sold at the very top of the market in 1917 for $4,000,000 in cash and a
$7,500,000 first mortgage bond issue. In that to he proved his business
sagacity, for the vast production of ships during the war glutted the market
for the next two decades.
McClintic-Marshall, last remaining member, and one of the biggest structural
steel fabricating and erecting concerns in the country, was sold in February,
1931, to Charley Schwab's Bethlehem Steel Corporation. Bethlehem paid
$8,200,000 in 4.5 per cent notes, assumed McClintic-Marshall's $12,000,O00
bond issue and threw in 240,000 shares of its common, possessing a market
value of $12,000,000. In 1931, the Mellon shares in Bethlehem brought in
dividends of $1,320,000, which wasn't so bad for the little $100,000
corporation of 1900.
Toward the end of 1932 it seemed that the Mellons, had made the better of the
deal with Bethlehem. True, no longer could Bethlehem common stock pay tribute
into Mellon coffers. But the Smithfield Street Medici had shifted to other
shoulders the onus of paying interest on McClintic-Marshall's bond issue
during years when steel companies reported staggering deficits. Moreover the
bright stars of Charley Schwab and Eugene (Million Dollar Bonus) Grace
dimmed. The Mellons were mentioned, not merely as the heaviest stockholders
in Bethlehem, but as soon to take control of the corporation. It would be
tardy but fitting revenge wreaked on Schwab by Henry Clay Frick's partner,
for his share in the Frick-Carnegie fight in 1899-1900. Frick had never
forgiven Schwab for siding with Carnegie and had dictated his removal from U.
S. Steel.
Koppers, in contrast to the steel companies which were being sold, was a
comparative newcomer in the list of Mellon's hundred corporations. If steel
had been the Golconda of the early nineteen hundreds, Koppers was a veritable
treasure trove that seemed to be the perfect product of the Third Decade.
Koppers was rooted in the World War's rich soil and luxuriated in the
poisonous fumes of gases that introduced new terrors into mass slaughter. The
humble coke, which its immense by-product ovens turned over to U. S. Steel
and other corporations or to the domestic furnace, became itself the
by-product and the gases and chemicals and dyes that were wrung from coal's
volatile ingredients the basis for a $177,000,000 firm. The story of Koppers
was as typical a Mellon saga as any in the history of the fortune.
It was no credit to presumably progressive American industry that a party of
U. S. Steel and H. C. Frick Company executives and engineers were touring
northern Europe in the summer of 1906. At that late date, they were
inspecting by-product coke ovens long used in Belgium, France and Germany, to
select a type suitable for America.
The Connellsville region was still using basically the same process as
employed in the beehive ovens Henry Clay Frick had started forty years ago
with Thomas Mellon's money. Coal's rich gases-passed through the top of the
ovens and were borne away on winds to desolate the countryside. It was
typical of lavish America; the waste of gases and their by-products was
estimated at no less than $20,000,000 a year as long ago as 1886.
The thrifty northern Europeans distilled their coal in retort ovens. The
gases were led away into condensers, washers, driers, from which were
recovered tar, benzol, ammonium sulfate. From these and kindred products came
explosives, aniline dyes and a thousand and one products in which German
chemistry gloried.
At Essen, the United States coke engineers paused to view Dr. Heinrich
Koppers' ovens, which had been gaining in popularity since 1901. He was
invited to come to America to build a unit of 280 ovens at Joliet, near the
best Illinois coal. Successful, Dr. Koppers opened an office in Joliet and
later moved to Chicago.
Nevertheless coke and iron men fought the Koppers coke, which lacked the
silvery sheen of beehive coke. They seemed to feel the sheen possessed
certain magic qualities which chemists were unable to record in any
laboratory test. The waste of coal's gases continued.
>From Frick, Mellon learned of the new ovens which could save millions of
dollars a year. That appealed to his thrifty soul.
They talked of an immense by-product coke plant along the Monongahela River.
Then came 1914.
The war cloud that floated over Europe was composed in good measure of the
by-products of coal gas. Each recoil of a giant gun released the concentrated
fury of those vapors. Likely as not they had been wrested from coal in a
Koppers by-product plant.
Mellon bethought himself of Koppers out in Chicago as his eye glanced down
the news in the morning paper. It looked like a long war. Why shouldn't
America get in on that good business?
Dr. Koppers was either a very modest man or shockingly poor at business. He
sold his American plant and patents to Andrew Mellon for $300,000 in stock in
the reorganized Koppers Company, and a salary of $10,000 a year. The offices
of the new $1,500,000 company were moved immediately to Pittsburgh, seat of
the war industries.
His purchase of Koppers was another of those astute coups by which Andrew
Mellon gained the title of "most distinguished financier of his times." Trade
was in a slump in 1914, orders were nil and Dr. Koppers apparently regarded
the American byproduct oven industry as a forlorn hope. But within a year a
horde of Allied agents had descended on the United States, waving contracts
for war supplies. Not the least of these were orders for explosives with
which the Powers of Europe were trying to blow each other into eternity.
The Mellons were on the alert. Millions were drawn from Union Trust to build
batteries of by-product gas ovens. Utility companies swamped Koppers with
orders. The Pittsburgh company built and operated plants on a 50-50 basis,
Koppers and the utility each paying half the cost and sharing in the
earnings. After five years the plants reverted to the utility. Koppers also
built its own by-product plants, organizing subsidiaries to operate them. Net
earnings of the Mellon company nearly doubled from $472,000 in 1915 to
$872,000 in 1916, which was 58 per cent on its capitalization.
Then came April 6, 1917. Mellon's native land was embroiled in the world
conflict and his Koppers Company went into the front line on the industrial
sector. Koppers' engineers worked day and night, planning new batteries of
ovens, erecting others, operating those just completed. Every two months a
new byproducts plant was completed, every six weeks a new benzol-toluol
plant. Toluol, base of TNT, and other explosive bases were Wrung from coal
gas and rushed overseas to help make the world safe for democracy. The United
States Government itself designated them as "war order" plants, whose
products were essential to the manufacture of explosives.
The land was full of alarums. Neighbors eyed each other suspiciously if their
names had been transported to America later than the Colonial epoch. The
Government called for patriotic spies to unearth vast plots financed by Hun
gold. Espionage laws were passed amid perfervid oratory. If a hundred radical
workers were jailed for each German spy, the steel trust and other industrial
leaders could hardly be blamed for rejoicing that at last the force of the
federal authorities fell on agitators and trouble makers.
War was a convenient excuse for confiscating out of hand property and patents
owned by Germans and Austrians in the United States. German patents
particularly stirred the envy of American chemical concerns. Here was a
chance to get for a song immensely valuable properties which the Government
was seizing.
No sooner had Dollar-a-Year A. Mitchell Palmer been installed as Alien
Property Custodian than an emissary of Andrew Mellon's Koppers Company
reported patriotically that 20 per cent of its stock was owned by one
Heinrich Koppers, resident of Essen, Germany. Palmer declared the property
confiscated, and 3,000 shares of the Koppers Company stock was turned over to
the Government for disposition.
The first sale by the Alien Property Custodian was made on September 12, 19
18. The second sale was that of Heinrich Kopper's property, held September 13
at public auction at the Pittsburgh Stock Exchange. There was only one
bidder, a director of the Koppers Company. The 3,000 shares were knocked down
to him for $302,250. That represented their 1914 value, plus accrued
dividends.
A rare bargain! One-fifth interest in a property then valued at $15,418,000
for a mere $302,250! It was not often in those hectic years that a buyer's
money went so far. The Koppers Company in the first six months of the year of
the sale of Heinrich Koppers' shares earned $606,000, or at the rate of 81
per cent on its capitalization. Ile German engineer's fifth interest was
easily paid out of profits for 1918 alone.
Business is business. After the war was over, relations were reestablished
between the Koppers Company of Pittsburgh and Heinrich Koppers A.-G. of
Essen. The American company needed access to new German patents elaborated
during the war. Now the Mellon company had to pay for them. And so the
American firm was able to keep abreast with old Dr. Koppers, thanks to the
purchase of his later patents, and to the researches of patient German and
American scientists working in the Koppers research laboratories in the
Mellon Institute in Pittsburgh.
Frick's dream of a great coke and gas plant at Clairton on the Monongahela
came to fruition during the war. Koppers built the world's largest plant
there for U. S. Steel. The H. C. Frick Coke Company closed down, battery by
battery, its obsolete beehive ovens, and they stood deserted until, in the
economic crisis following 1929, destitute coke workers' families moved into
their stygian darknesses to wait for prosperity.
The U. S. Steel's plant at Clairton was a world's wonder and even German
technicians crossed the ocean after the war to pay the tribute of inspection
and praise. The Koppers-Becker ovens gradually displaced competition until
the Mellon company could boast in 1931 that go per cent of all ovens
installed in the past five years were of its manufacture.
If the Mellons had depended on Dr. Koppers' ovens, as perfected by Dr.
Becker, the history of the American Koppers Company would have paralleled its
German counterpart's. But when Midas Mellon touched these ovens, they ceased
to be merely giant toasting frames for coal. From batteries of ovens grew
corporations making, digging, operating, owning steel, coal, railroads, tar
distilleries, wood preservatives, moth balls, dye bases, ties, lumber,
rheolaveurs, gas plants, utilities firms. After all Midas' touch was a dull
and prosy gift compared with Mellon's.
Almost inconspicuous became the company Heinrich Koppers had founded in 1908;
even its name was changed to Koppers Construction Company, and its
business�that of designing and assembling plants for the production of coke,
gas, benzol, toluol, naphthalene, gasoline, tar, and ammonia�was subordinate
in the congeries of corporations that fell under the sway of the Koppers
Company of Massachusetts, a voluntary association of gentlemen who were
subject to none of the Bay State's laws regulating companies and partnerships.
This metamorphosis was due, in part, to the discoveries made by H. M.
Byllesby, Samuel Instill, H. L. Doherty and Sidney Z. Mitchell, all
generalissimos of privately owned public utilities, that two plus two is not
necessarily four. As a matter of fact they achieved astounding mathematical
results by compounding humble gas and electric plants with the higher finance
in holding companies. Given this discovery, the possibilities of Koppers
ovens compounded with Union Trust seemed almost limitless.
Koppers Gas & Coke, newly organized under Delaware's friendly laws, shoved
off into the glittering firmament of superutilities with a $25,000,000 bond
issue on June 51 1927, Union Trust, aided by Guaranty, Bankers Trust and, Lee
Higginson, permitted an eager public to snatch the bonds. So adroitly was the
investor's money used that by September 24, 1927, the New York Times could
say that the "Mellon family and its affiliates are in an unequaled position
in the eastern public utility field."
The mystery and awe vested in the Mellon name led the financial community to
see an alliance between the Morgan and Mellon dynasties to control the
Atlantic seaboard's consumption of gas, light and heat. At least the two
interests were already linked through Niagara Hudson Power. Mellon's Aluminum
Company had traded its St. Lawrence Power Corporation for 10.7 per cent of
Niagara Hudson shares, and by 1932 owned 21 per cent of the $799,000,000
power corporation.
The basis for this block in the gilt-edge security was the MelIons' ownership
of hydroelectric developments and sites near Massena, N. Y. These lay along
the international rapids where engineers have planned a 2,000,000 h.p.
development. The struggle of the Morgan-Mellon company to acquire rights to
develop this water power was the bone of contention when Ogden L. Mills and
Alfred E. Smith were candidates for governor of New York in 1926. Mills
argued for private ownership of the St. Lawrence's power and further
ingratiated himself with the Secretary of the Treasury. Following his defeat
he went to Washington to become Under-Secretary.
Al Smith contented himself with quoting Theodore Roosevelt: "Keep your eye on
the Aluminum Company that is trying to get control of your water powers.
Don't let go of them. We have been too free in the past. I have no objection
to big business making money but I do not want it to make it at the expense
of public interests."
The former President's warning, spoken in 1915, would have been quite futile
had not Governor Smith threatened the MorganMellon company with the legal
opposition of the state against its license to develop the St. Lawrence,
granted in 1926 by the pliant State Waterpower Commission.
In 1932 the issue bobbed up again when, Frank P. Walsh, chairman of the New
York State Power Commission, told a Senate subcommittee that the new United
States-Canadian treaty regarding joint development of the St. Lawrence
guaranteed the Aluminum Company rights which might cost the people of New
York $100,000,000 in the next forty years. Plans incorporated in the treaty,
said Walsh, gave the Aluminum Company permanent diversion of 25,000 cubic
feet a second, if the company were unable to agree with the state on terms.
This clause, he insisted, immeasurably strengthened Aluminum in any
negotiations with the state and would deprive New York state of 25 per cent
of the American power-generating capacity at the main dam and increase
production costs by 35 per cent. Notes exchanged subsequently with Canada, as
a result of his protest, established an interpretation of the treaty removing
any such guarantees to Aluminum.
In addition to making occasional working agreements with the Morgan utilities
group, the Pittsburgh bankers were interested in United Gas Improvement of
Philadelphia and Consolidated Gas of New York. They based their mushroom
expansion on Koppers' ownership of coke and gas plants in St. Paul,
Milwaukee, Chicago, Philadelphia, New Haven, Baltimore, Brooklyn and Boston.
Typical of these operations was the acquisition of New Haven Gas Light
Company, for which Koppers had built a gas plant in return for a block of
stock.
New Haven's stockholders were offered a half share, no par value common
stock, and one share Of $3 dividend cumulative preferred stock in the newly
created Connecticut Gas & Coke Securities Corporation, in return for the
surrender of each share of New Haven Gas Light. By that marvelous wizardry of
utilities financiers, it was a bargain all around. It cost Koppers little to
set up the securities corporation and the public did most of the financing
through a subsequent bond issue. New Haven stockholders got the equivalent of
$70 for each share, par value $25, market value $62. Described as a
$7,000,000 deal, it had cost the Mellons merely promises to pay if and when
future earning permitted.
There were plenty of bargains like that around the country. Nothing seemed
easier than to pull a $10,000,000 holding company rabbit out of a mere coke
and gas silk hat. The Times' financial editor shed some light on the process:
"The Mellon interests strengthened their position in the United Light and
Power Company through a tour de force executed early last March [1926]. At
that time Frank T. Hulswit was President of the United Light and shared
influence on the board with representatives of the Koppers Company. This
situation changed overnight after Mr. Hulswit failed disastrously in a
spectacular market operation with United Light stock . . . "
Hulswit's bad judgment gave the Mellons leadership in a $87,000,000 holding
company which owned 51 per cent of American Light & Traction, another holding
company. The two between them held basic properties worth a half billion
dollars. A $25,000,000 bond issue recouped Koppers for its cash outlay in
that and other bargains. United Light & Railways, Continental Gas & Electric,
United Ohio Utilities were numbered among subholding companies that fell into
the Koppers orbit through the United Light & Power coup.
Aggrieved minority stockholders in American Light & Traction sought relief in
New Jersey chancery court from manipulations of the Mellon and Eaton
interests which they charged were fraudulent. Koppers sold its Milwaukee gas
plant to American Light & Traction at a profit of $7,000,000, they charged.
American Light & Traction was then made to buy Brooklyn Borough Gas from
United Light & Power at a $7,000,000 profit to the latter. Then it was forced
to sell 153,200 shares of Brooklyn Union Gas at $135 a share when the market
value ranged up to $203. Through these and similar maneuvers, American Light
& Traction dissenters alleged, the company had lost $19,500,000
By the end of 1928 Koppers had detached both Brooklyn Union and Brooklyn
Borough Gas from United into its own hegemony. The public was permitted to
pay for the acquisition by buying $2 0,000,000 of Koppers Gas & Coke
preferred and $2 1,000,000 of debentures.
The Mellons' ownership of 99 per cent control of Brooklyn Borough and 24 per
cent of Brooklyn Union ran smack into the New York state law providing that
no holding company shall own more than 10 per cent of the capital stock of a
public utility. Attorneys for Koppers readily complied by organizing ten
companies for Brooklyn Borough. Their names were: Aden, Burma, Canton, Dover,
Etna, Farley, Gorham, Hector, Irving and Java. To comply with the law in
regard to Brooklyn Union, the Bexley, Falmouth and Gregory companies were
organized.
The new owners of Brooklyn Borough insisted on the $1 minimum rate to
consumers. John Bauer, authority on gas rates, said that charge meant a cool
million a year to the Mellons.
Mayor Walker ordered the city's corporation counsel to seek a general
lowering of gas rates.
The Mellons were reported ready to invade Manhattan Island. Their Koppers
Construction Company was building the Hunts Point plant for Consolidated Gas
and an $8,000,000 plant for the United Gas Improvement in Philadelphia The
names of Mellon, Morgan and Drexel were associated in the proposed
construction of an eastern super-power corporation to dwarf all other holding
companies by the immensity of its multi-billion resources.
These reports were exaggerated. Koppers was interested at the time in certain
little trinkets up around Boston Bay. It had gone into the coal business and
was selling fuel to the Boston gas companies. Late in 1927 the Mellon firm
had picked up the properties of T. E. Houston, last of the 13 pioneers in the
rich Pocahontas coal field in West Virginia. Houston's 27,000 acres contained
300,000,000 tons of high grade coking and by-product gas coal. In trains of a
hundred gondolas the new Koppers coal rolled down to Hampton Roads, to be
loaded on 3,000-ton Koppers colliers for transportation to New Haven and
Boston. Ile public was permitted to help Koppers Coal Company pay its
$20,000,000 for the Houston properties through an $8,000,000 class A
preferred stock issue and another for $10,000,000. Control was kept in
200,000 shares of no par value common stock.
Koppers was reported to have swapped its American Tar Products Company for
Massachusetts Gas, to whom it supplied coal. American Tar Products itself was
a considerable enterprise, built on the tar that dribbled out of coal gas. In
19 distilling and blending plants, American Tar Products turned out wood
preservatives, road building material, roofing, waterproofing, pitch,
disinfectants, moth balls, acids, naphthalene, dye bases, medicines, resin.
Through the Wood Preserving Company, Tar Products owned Ayer & Lord Tie
Company, which in turn controlled lumber companies in Illinois, Kentucky,
Arkansas, Mississippi, Alabama, and Louisiana. These treated railroad ties,
lumber, poles, piles and posts. Its National Lumber & Creosoting Company
owned 500,000,000 board feet of lumber in 65,000 acres of timber lands in
Texas, Missouri, Ohio, Colorado and Wisconsin. Even so, American Tar Products
was merely a minor gem in the Mellon diadem.
Its exchange with Massachusetts Gas was not allowed to be a parting;
financial handbooks continued to list it as a Koppers subsidiary under Mellon
ownership.
By 1929 Koppers had acquired the entire capital stock of Old Colony Gas,
Boston Consolidated Gas, New England Fuel & Transportation. These companies
had had their capitalization limited under the strict supervision of the
Massachusetts Department of Public Utilities, which looked with disfavor on
their absorption by "foreign" utilities promoters. The Department warned:
"We think it would be unfortunate for our domestic companies, which largely
have grown up under our New England idea of basing, in large measure, the
rates upon investment and which have conducted their business with thrift, to
pass under the control of such foreign financial interests."
Mellon lawyers were well aware of the rigors of Massachusetts regulation and
kept clear of it by organizing the Eastern Gas & Fuel Associates as a holding
company for their New England properties. The Associates was neither a
partnership nor a corporation nor any body legally recognized in
Massachusetts as subject to regulation by the state utilities department. It
stood outside the law.
Included in the Associates' portfolio were companies with assets Of
$203,000,000. The public was invited, as usual, to pay most of the costs of
acquisition by subscribing to $25,000,000 Of, 4.5 per cent prior preference
shares and $100,000,000 of cumulative preferred bearing 6 per cent interest.
In the first year of Associates' ownership, its properties made a new
operating profit of $10,348,000. The $2,687,000 net income after payment of
prior preference and preferred dividends represented that reward of
initiative and foresight which the Mellons, pere et fils, never tired of
lauding as typical of the American system of business enterprise.
As a keystone to the capital structure imposed on subordinate companies,
Koppers Gas & Coke added a $25,000,000, 5.5 per cent issue to pay for its
trouble in acquiring Eastern Gas & Fuel Associates. The newest offering was
absorbed greedily by careful investors who had confidence in the magic name
of Mellon.
Companies in the Koppers system were reshuffled early in 1933 for a new deal.
>From this came the Koppers Coal and Transportation Company, which mines coal
in West Virginia, Kentucky, and western Pennsylvania, ships it from Virginia
to New England and distributes it to Eastern Gas & Fuel subsidiaries and the
general public. The new company owns 775,000,000 tons of unmined coal, 46
colliers, and docks. The only non-Mellon link in this mine to gas plant chain
was rail transportation from the Appalachians to tidewater. Soon after the
formation of Koppers Coal and Transportation Company, however, the dispatches
told the election of Richard King Mellon to the board of Norfolk & Western.
Koppers acquired a substantial interest in U. S. Electric Power Corporation,
a $1,200,000,000 holding company superimposed on a score of sub-holding
companies whose fanciful names reflected the gaudy epoch in American finance.
They included United Founders Corporation, American Founders Corporation,
Public Utility Holding Corporation, Central West Public Service, Central
Public Service, Standard Power & Light, Standard Gas & Electric, American
Commonwealths.
In another direction the Mellons strengthened their hold in United Light &
Power. This led to interconnections with Continental Shares, Detroit Edison,
Pacific Gas & Electric, North American Company and the vast Insull holdings.
Prudently Koppers disposed of its holdings in Instill's Middle West Utilities
in 1930
By these few moves in the utilities field, the Mellons added enormously to
their wealth�at least on paper. Their share in Niagara Hudson was
$168,000,000; in United States Electric Power it was estimated at
$125,000,000; in United Light and Railways at $99,000,000; in United Light
and Power at $86,000,000. This came to a total of $478,000,000. Perhaps it
was not to be compared in solidity with the Mellon stake in Gulf or Koppers;
nevertheless so long as utilities holding corporations were able to maintain
their puffed ratings, the Mellons had a definite lien on the income of
consumers of electricity, gas and street railway transportation.
As a sign that they had done very well indeed by Koppers, the Mellons erected
a great office building in Pittsburgh to house headquarters staffs of the
widely ramified interests built on coke and gas. A lobby bright with gilt and
paved with marble reminded Pittsburgh that its most distinguished citizens
had brought booty fit for kings to their home city, and were willing to make
a public triumph of their victories. Even the Mellons' most inveterate
critics halted before those twin giants, the Koppers and Gulf skyscrapers,
and admitted that judge Mellon's boys had done a fine thing by their city.
To protect these sudden accessions to wealth from possible criticism by the
consumers of gas, Koppers and its various subsidiaries and allied interests
enthusiastically supported the American Gas Association. One of the
Association's main duties was to make editors see the folly of public
ownership. Speaking before an A. G. A. convention, a representative of the
Illinois Committee on Public Utility Information reported that attacks on
private utilities by the press of his state had been quite a problem until
they appropriated $25,000,000 for advertising. It recalled Judge
Mellon's remarks on the Pittsburgh street railway scandals of 1883: "Whenever
any enterprise comes up in Councils with any money in them, the parties go
to work and have the newspapers boom it up. They go to the newspapers and
contract for space.
The price varies."
W. C. Beckjord of American Light & Traction (whose chairman was Richard B.
Mellon) was vice, president of the American Gas Association and Clifford E.
Paige of Brooklyn Union Gas was treasurer. Koppers men sat on the various
committees. The chairman of the committee on cooperation with educational
institutions thus explained its mission: "Someone has said that as the twig
is bent, the bough is inclined, and the committee that I have the honor to
represent . . . might be known as the twig committee." It took care of high
schools and universities, interesting students in the business, training
them, through free booklets, in the beneficence of privately owned gas. The
Federal Trade Commission, under Senate prodding, looked into the activities
of the American Gas Association and its twin-brother, the National Electric
Light Association, and accused them of attempting to debauch the educational
system and the press.
The impression was widely prevalent among many Pittsburghers that there was
some link, more or less mystical, between Union Trust, Mellon National Bank,
Union Savings and the U. S. Treasury. It was understandable, even if
unwarranted. Secretary Mellon was hardly to blame for the error because he
had assured numerous inquirers that his holdings in his banks had been sold;
nevertheless the populace regarded this as a subterfuge, believed that Reed,
Smith, Shaw & McClay had been able to find some legal way of divesting Mellon
of his bank stock so that he could regain it when he needed it, without going
into the open market.
The Secretary did not bother to divest himself of part ownership in the
Mellon National Bank Building, whatever his disposition of the bank's stock
itself. He was shown as holding a fourth of the $4,368,000 property, his
brothers James and Richard a half, and the three children of Thomas A.
Mellon, the remainder. The Mellons held nearly $40,000,000 in real estate in
Pittsburgh, most of it in downtown property. Just as they had widened alleys
into streets in the constricted Golden Triangle in prior decades, so in the
twenties, the Mellons induced the city fathers to permit the widening of
Grant Street, on which Union Trust and other Mellon buildings faced. To
perform the operation it was necessary to shear off part of the front of
Richardson's courthouse, whose expense had so pained Judge Mellon. Thereupon
the new Koppers and Gulf Buildings were erected on that thoroughfare. Next to
Gulf nestled the Pittsburgh branch of the Federal Reserve Bank in a modest
aluminum-spandreled structure that providently preserved the air and
light-rights of Gulf's upper stones. The new $8,000,000 postoffice and
federal building was built opposite the Gulf Building, and what had been a
rather deserted and down-at-heel end of the city became a section of
skyscrapers, smart shops and pressing throngs, much to the financial
advantage of the Mellons, who held nearly all of the still undeveloped
property on Grant Street.
The Mellons even became hotel men. Their Pittsburgher Hotel was the most
modern in the city, and the Fort Pitt and William Penn continued under their
thumb, for the Mellons held underlying mortgage bonds on the Pittsburgh
Hotels Company's properties for $12,000,000. In the spring of 1933 Union
Trust sued for foreclosure when the company defaulted.
As a symbol of its national fame, Mellon National Bank opened for business
March 19, 1924, in a $4,000,000 structure on Smithfield Street that recalled
faintly those original refuges of money-lenders, the Greek temples of the
Archipelago. Present at the opening were officers of the leading New York
banks. Benjamin Franklin, who had stood guard patiently in front of Thomas
Mellon's elegant $20,000 iron front building since 1872, was mounted high in
the main banking room of the new temple of finance.
Mellon National, the "bankers' bank" for two hundred miles in every
direction, organized Mellbank, a holding corporation to acquire country
banks. In nearly every industrial community in western Pennsylvania business
people could deal with a local Mellbank institution. These "country banks"
under Mellbank supervision claimed resources in 1931 Of $89,389,279. In
addition the Mellons were believed to hold dominating position in the Farmers
Deposit National Bank and its trust company.
The Mellons, haughty rulers of their province, as ever refused to hook up
with any New York banking firm. Nevertheless they enjoyed close relations
with both the Morgan and Rockefeller crowds in New York, helping them sell
their choice offerings, including Kreuger & Toll debentures, in the years
preceding the Great Debacle. Richard B. Mellon, A. V. Davis of Aluminum, H.
C. McEldowney of Union Trust were on the "favored lists" of J. P. Morgan &
Company when that house gave insiders below-market rates on new securities.
Richard B. Mellon was a member of the board of Guaranty Trust and American
Surety in New York, of the United Gas Improvement of Philadelphia and of the
Pennsylvania Railroad and its Pennroad. William L. Mellon sat on the
Philadelphia Company board, which ran Pittsburgh's gas, light and traction
companies.
Union Trust, keystone of the Mellon financial edifice, was housed in the
$10,000,000 pseudo-Gothic cathedral built by Frick to appease the righteous
protests of worshipers at the old church he tore down on its site. A new
local bank, the Forbes National, was erected near the groves of Academe, and
the presidents of the University of Pittsburgh and Carnegie Institute of
Technology decorated its board.
More than ever before the Mellons were masters of Pittsburgh. Substantial
business men professed to believe that they could be ruined by the Mellons'
displeasure. At any rate that was the story many of them told representatives
of the American Civil Liberties Union and similar organizations when their
support was sought for liberal causes. "Don't quote me" was the invariable
rule when newspaper men obtained instances of business practices or
expressions of opinion which might conceivably antagonize the proprietors of
Union Trust and Mellon National.
It was true that most of the corporations in the Pittsburgh district were
dominated by or allied with the Mellon financial interests. The roll of
directors of Union Trust and Mellon National comprehended the decisive
elements in Pittsburgh industry:
J. Frederic Byers, vice president, A. M. Byers Company, iron.
George W. Crawford, chairman of the board, Columbia Gas & Electric.
Arthur V. Davis, chairman of the board, Aluminum Company of America.
Henry C. Fownes, vice president, Fownes & Orr.
Childs Frick, son of Henry Clay Frick.
Arthur L. Humphrey, chairman of board, Union Switch Signal (Westinghouse).
Roy A. Hunt, president, Aluminum Company of America.
Benjamin F. Jones, 3rd, vice president, Jones & Laughlin Steel Corporation.
James H. Lockhart, vice president, Lockhart Iron & Steel Company.
J. Marshall Lockhart, Lockhart Iron and Steel Company.
Henry C. McEldowney, president, Union Trust Company.
Richard B. Mellon, brother of A. W. Mellon.
Richard K. Mellon, son of Richard B. Mellon.
William L. Mellon, son of James Ross Mellon.
Paul Mellon, son of A. W. Mellon.
Lewis A. Park, of the Park steel family, founders of Crucible Steel.
Howard Phipps, partner in the old Carnegie Brothers Steel Company.
David A. Reed, of Reed, Smith, Shaw & McClay, also U. S. Senator.
William C. Robinson, chairman of board, National Electric Products
Corporation; president, American Circular Loom; director, American Waterworks
& Electric, Jones & Laughlin, etc.
William B. Schiller, director, Bell Telephone.
George E. Shaw, of Reed, Smith, Shaw & McClay; director, Crucible Steel,
Pittsburgh & Lake Erie R. R., etc.
Homer D. Williams, president, Pittsburgh Steel Company.
Wilson S. Arbuthnot, of Arbuthnot-Stephenson Company, dry goods firm.
Edwin R. Crawford, president, McKeesport Tin Plate Company; director, First
National Bank of McKeesport; director, First National Bank of Duquesne.
Harry W. Croft, chairman of board, Harbison-Walker Refractories Company.
William H. Donner, former president, Lackawanna Steel Company.
Howard Heinz, president, H. J. Heinz Company.
Bertrand W. Lewis, vice president, Mellon National Bank.
Allen W. McEldowney, vice president, Mellon National Bank.
Alan M. Scaife, president, William B. Scaife & Sons, ironmongers.
William P. Snyder, Jr., president, Shenango Steel Company;
director, Pittsburgh Coal, Crucible Steel, etc.
William G. Warden, chairman of board, Pittsburgh Coal Company.
Financing of such hundred million dollar corporations as Pittsburgh Steel,
Pittsburgh Coal, Crucible Steel, Pittsburgh Plate Glass and a score of
smaller firms was in the hands of the Smithfield Street bankers. They set the
terms of the bond, sold the issue and represented the interests of the
bondholders. Usually they retained a block of the stock or bonds they
floated. They sat on the boards of such firms and were generally acknowledged
to be in control of their financial affairs, although the Mellons' holdings
in Pittsburgh Coal�25 per cent�were probably as large a share of stock as
they cared to possess in any of them. There are richer fields for investment
than the common stocks of Pittsburgh district firms, the more so since the
Iron City has lost its old monopoly position in the iron and steel industry.
The history of Pittsburgh Coal reflected little credit on the Mellons' zeal
for the protection of stockholders in the firm they helped to organize. By
1916, its tonnage suffering from the inroads of cheaper Southern coal,
Pittsburgh Coal had $12,000,000 of unpaid cumulative preferred dividends
chalked up on the books, and had rarely paid any dividends on common. A
readjustment committee composed of Andrew Mellon and others took charge of
the painful deflation of stock from $96,000,000 to $80,000,000.
The Mellons' second effort was no more successful thin their first in 1899.
Common dividends were paid intermittently from 1918 to 1925, but not
thereafter. In 1932 the cumulative preferred dividends were again in arrears,
for 37.5 per cent. Union Trust had floated another $25,000,000 bond issue in
1929, taking its own generous cut.
The firm enjoyed a temporary flush of speculative prosperity in 1927 when a
sensational Stock Exchange battle for its control sent common stock up from
32.75 to 73. U. S. Steel was reported in the market for more coal lands,
several railroads were angling for Pittsburgh Coal's still immense tonnage,
and a consolidation of coal properties greater than any yet attempted was
said to be under way.
Pittsburgh Coal's common reached its top on June 10, 1927, when the company
asked permission to list 78,300 additional shares on the market. Later it was
discovered that the additional stock had been sold to an "insider" at $35 a
share, when the market value was more than $70. The "insider" had made the
purchase just as one of the competing groups was-about to gain control.
The "insider" turned out to be Richard B. Mellon, former chairman of
Pittsburgh Coal's board. Based on the market value of the stock, he had saved
$2,730,000 on his purchase, by having the board authorize the release of
treasury stock. Based on the book value, the company had lost $5,000,000 by
the deal.
Such calculations became a mockery however in view of later quotations. By
mid-1932 fractions had become important in Pittsburgh Coal quotations, which
hovered around 4. Its production which, old timers had remembered, was to
have increased steadily year by year, was now about half that of the boom
period following the Spanish-American War.
The crisis of 1929 brought the Mellons closer to the inner holy of holies of
the $400,000,000 Westinghouse enterprises, next to U. S. Steel the largest
congeries of corporations in the Pittsburgh district. W. L. Mellon became a
member of the executive and finance committee of Westinghouse Electric &
Manufacturing, and two other Mellon men were given seats on the board,
reflecting the family's waxing interest in the great international
corporation.
Quietly the Mellons had been expanding their own construction firms. It was
against the thrifty sense of the family to let any profits dribble to
outsiders, particularly at a time when they were erecting some of
Pittsburgh's most notable buildings-the two downtown skyscrapers, the new
Mellon Institute and the East Liberty Presbyterian Church. Mellon-Stuart, run
by Thomas A. Mellon, grandson of Judge Mellon, took care of the construction
details, using of course McClintic-Marshall steel. It was the same regard for
keeping money in the family which led to the growth of National Union
Indemnity, National Union Fire and Union Fidelity Title Insurance, all of
which catered particularly to needs of Mellon enterprises, as well as to the
general public's.
pps. 272-300
-----
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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