-Caveat Lector-
an excerpt from:
Mellon's Millions
Harvey O'Conner�1933
Blue Ribbon Books
New York, N.Y.
--[17a]--
17
Exile in England
CHARLEY DAWES was impatient with the unending formalities, the flunkeyism,
the polite palaver of the Court of St. James'. Dukes and duchesses found his
efforts at drollery not amusing. Out of his own pocket he spent thousands of
dollars to hire, among others, leading Broadway comedians to spill liquor
down the necks of the British nobility, and their only response was
annoyance. Charley was fed up. He longed to end his exile, to be back in the
rough fray of American politics and finance, to be talking business with the
hog butchers of Chicago, the lamb butchers of Wall Street. He quit cold on
January 8, 1932.
To the White House, his resignation was heaven-sent. At last a post was open
that was not beneath the dignity of the Secretary of the Treasury. He was
sticking tenaciously to the Treasury, Hoover discovered, in lieu of anything
else to do. Return to Pittsburgh he would not. There was emptiness, a barren
waste of idle steel mills, of dead machinery and of men who were better dead.
There had been hints and snubs sufficient to indicate that he was no longer
needed in the Administration. But Pittsburgh training was not calculated to
produce sensitivity. Or perhaps if he were embarrassing the President, the
Secretary got some satisfaction from that negative achievement.
The delicate task of inducing Mellon to transfer the seat of his activities
from the Exchequer to the London Embassy was entrusted to Dave Reed, whose
affection for the Pittsburgh banker was balanced by his solicitude for the
Administration, soon to face a trying Presidential election. He had a
difficult job.
Mellon did not care to be budged from the acceptable routine or Washington,
to be precipitated into the social whirl of diplomatic life in London. More
important, he regarded Reed's suggestion as Hoover's capitulation before
cheap and demagogic politicians. How despicable the man's attitude! When
Mellon had faced far more serious attacks, the imperturbable Coolidge had
ignored them, or risen to the occasion with a stinging message to Congress.
But this President cowered before a Texarkana Congressman and an unstable
California Senator.
There was nothing left but to accept the London post, Mellon could see.
Otherwise he might be sacrificed on the Patman-Johnson altar. On February 2,
1932, Dave Reed was able to report success to the White House. Most important
problems of unusual gravity awaited his coming to London, the Secretary had
been told. Only a public servant with his acumen could grapple with those
problems. He agreed. The White House lost not a moment. The announcement said:
"The critical situation facing all countries in their international
relations, the manifold economic and other problems demanding wise solution
in our national interests calls for experience and judgment of the highest
order. The importance to our country of the sound determination of these
world-wide difficulties needs no emphasis.
"I have decided therefore to call upon one of our wisest and most experienced
public servants to accept a position which will enable him after many years
of distinguished public service at home to render equal service to his
country in the foreign field.
"I have asked Mr. Mellon to undertake the Ambassadorship to Great Britain. I
am happy to say he has now expressed his willingness to serve."
The issue of the Secretary's acceptance had been so doubtful up to the last
minute that the State Department was not given opportunity to inquire of the
British Government if the appointment were acceptable. That however was a
mere formality. The Secretary, wealthy and distinguished, soothingly
conventional, was doubly welcome.
The impatient Mills was almost immediately vested with the Secretary's robes,
marking the satisfaction of desires which had been poorly concealed since he
announced himself for Hoover before the 1928 convention. The new Secretary,
also wealthyestimates of his possessions ran up toward $100,000,000� brought
into the Treasury the open and unabashed Wall Street leadership from which
Harding had shrunk in naming a Pittsburgh banker.
Whatever the mixed emotions of Pittsburghers might be, the Pittsburgh
newspapers, loyal to the local Croesus, were indignant over the unceremonious
dismissal of Mellon. The Sun-Telegraph's political editor wrote that "the
effort of President Hoover to camouflage the split between the White House
and Secretary of the Treasury A. W. Mellon has failed completely. Mr.
Mellon's effort to cooperate in this political deception, his sense of party
loyalty stronger than his personal feelings and disgust with the trend of
affairs in Washington, has proved equally futile. Mr. Mellon accepted
appointment as Ambassador to Great Britain as an alternative to a complete
severance of his participation in public life and a return to his private
business affairs in Pittsburgh. The episode," he concluded, "has created a
tremendous stir in Pittsburgh among Mr. Mellon's associates in finance and
will have widespread repercussions in Pennsylvania politics. It is positively
known that many financial leaders here affiliated with the Mellon enterprises
feel that the former Secretary has been shabbily treated by the President.
They are highly resentful, and political sentiment in this group, never warm
toward Mr. Hoover, has cooled perceptibly in the past two days."
The Washington correspondent for the Pittsburgh Press wrote of Mellon that
"now there are few to, do him homage. President Hoover also has concluded
that Secretary Mellon should have retired sooner, because on the eve of his
campaign for reelection Hoover finds another job for him. Hoover has left the
impression that whereas Mellon was an asset to him four years ago, he will be
a liability this year. Many in Washington feel today that Mellon's passing is
a tragedy�a tragedy of a broken and disillusioned man."
The New York Times was polite. "The list of our Ministers and Ambassadors
there [in London] is starred with brilliant names," that journal remarked.
"It is difficult to think of Mr. Mellon as easily taking his place in that
distinguished company. He is not a literary man like Lowell. He is not a
speaker like Choate. He is not a great lawyer like Phelps. But, after all, he
has a distinction of his own, a great reputation which he has honestly won .
. . "
"If Mr. Mellon," commented the Times' financial editor, "had suddenly decided
in 1927, 1928 or 1929, to give up the portfolio of Secretary of the Treasury,
the Stock Exchange would have been jarred to its foundations, it was remarked
by persons who recalled the sharp reactions that were once produced by mere
rumors that he might resign. The news . . . of his impending transfer to the
Court of St. James's caused not even a ripple in the stock market�a fact that
did not escape the attention of Wall Street. Obviously, it was pointed out,
the market's sensibilities have been dulled and, furthermore, the idols of
yesterday are no longer worshiped as in the halcyon days."
The former Secretary slipped quietly out of Washington to take a vacation in
Georgia, leaving few behind to mourn, save perhaps Congressman Patman, who
had been cheated of his quarry. The fiery Texan asserted that Mellon's
transfer to London had "saved the Republican Party from a scandalous exposure
that would have rocked the pillars of our Government." The appointment he
regarded as a "presidential pardon." The Teapot Dome scandal was a "molehill
compared with the Mellon-acquired Barco concession in Colombia." "Mr.
Mellon," he summed up, "has violated more laws, caused more human suffering
and illegally acquired more property to satisfy his personal greed than any
other person on earth without fear of punishment and with the sanction and
approval of three chief executives of a civilized nation." The nation paid
scant attention to Patman and seemed glad to forget about the alleged
scandals, without bothering to inquire into details.
The House judiciary committee took advantage of Mellon's confirmation to
withdraw gracefully from the impeachment proceedings which Patman demanded.
It was impossible to impeach a Secretary who had resigned, and idle to
investigate him. Nevertheless for two heated hours the committee wrangled
over an insurgent effort to insert in the resolution a statement that Mellon
had held office illegally. The final vote was 17 to 4.
Senator Norris took a parting shot at his old political enemy. "Poor old
Andy," he said. "Our Ambassadors, when you take their social activities away
from them, are only stool pigeons. One of these bright page boys, taking away
their social perquisites, could perform the duties equally as well as the
greatest Secretary of the Treasury since Alexander Hamilton.
"I understand Ambassador Dawes left his knee-breeches over there in London.
Picture Andy, on his diminutive pipe stems in Dawes' knee breeches in the
presence of aristocracy. It does seem that the President has not treated Mr.
Mellon with the respect due one of such long service."
The new ambassador was not without a quip, flecked with bitterness, when he
was sworn in. "This isn't a marriage ceremony," he said, "it's a divorce." He
accepted his new position with as much grace as his philosophic nature
permitted. He was an old man now, a pawn in the hands of politicians, too
symbolic of might to be tossed aside, too well disciplined in upholding the
established order to revolt, too old to reenter the hurly-burly of trade and
finance in Pittsburgh, too disinterested in life to care to.
London and Paris speculated endlessly. Mellon's earlier statement that the
British war debt to the United States should perhaps be scaled down in view
of the decline of the pound had roused hopefulness. His intimate
acquaintanceship with problems of international finance was another good
point. His custom for many years before becoming Secretary of spending the
summers in England had given him a sentimental attachment to the land, the
political writers believed. They attached to him a vast power. As a
multi-millionaire, he gave orders to the American politicians, his whim was
law and his word could reduce or wipe out the debt.
Why, the man and his family were worth �1,600,000,000! A French paper cut the
fortune into bricks of gold and found there were 16o,ooo bricks worth
1,000,000 francs each. Three thousand bricks would build a house, and the
Mellon fortune in golden bricks would construct 52 such houses of gold.
Magnifique!
But when the reporters clustered about the envoy in the Ambassador's room at
14 Prince's Gate, overlooking Grosvenor Gardens, they were disappointed if
they expected the biggest story of the year-reduction in the debt to
America-to break there. "They say, Mr. Mellon," ventured one, "that your
appointment to London has a special significance in view of the European debt
situation."
The Ambassador's deft reply was worthy of his position. "Who says this?" he
asked blandly. The question died on the lips of its propounder.
While the populace in London gaped in awe at tales of the imperial fortune of
the new Ambassador, the American press titillated the fancies of its readers
with the consideration, from every angle, of the engrossing problem, would
Mellon wear knee breeches? War debts faded into secondary importance. At
first he was inclined to be good-natured about inquiries. Later, under the
provocation of repeated questions, he became annoyed about the attention paid
an "unimportant matter." Breeches won. Would the Embassy serve liquor? the
curious American public next demanded to know. It would. The new envoy had
never been ranked with the prohibitionists.
And the social question. Ailsa, now the 29-year-old Mrs. D. K. E. Bruce, once
again shone in the bright lights of the social columns. The "Dollar
Princess," herself presented first to the Court, in turn introduced 21
American women culled from a mass of hundreds. The Ambassador, on presenting
his credentials to the King, was tendered the unusual honor of being invited
to stay for luncheon at Windsor. Later there were dinners with the Prince of
Wales and other dignitaries. Socially at least, the son of an Ulster
immigrant could aspire no higher.
Andrew W. Mellon was not the "broken and disillusioned" old man he was
pictured when he left Washington. The Mellon fiber was tougher than that; a
graceless dismissal was disgusting but it did not break his spirit. As for
disillusionment, the family made it a point to cherish no illusions, so there
were none to be shattered.
The Ambassador's fall from the heights was well cushioned. He was not
a vain or overly ambitious man. Praise and scorn were subject to the same
discount in the hard Mellon philosophy. At the height of his prestige he had
been able to jest at the Alex-ander Hamilton comparisons and now, shunted to
one side by Hoover, he could smile bitterly at the unseemly haste in which he
had been pitched into the Court of St. James'. A man of Hoover's caliber
could not wound the financier deeply; he had only contempt for the fretting
and petulant figure who paced his study in the White House, wrestling with
ogres of panic.
The tragedy of Andrew Mellon ran deeper than that. It was the tragedy of a
man who had come to the end of his world, and now looked forth into a void
space which harbored no warmth for an old man's declining years, no assurance
that the "wen doing" of his grandparents would march on to new, victories and
high triumphs. All about him lay the wreckage caused by the impact of modern
technique upon ancient principles and prejudices. The one an irresistible
force, the other an immovable body: in the crash both had been pitiably
shattered. The triumphs of science in enriching the world counted for naught
to starving millions who benefited not at all from the embarrassing abundance
of food and goods; the stem old principles of rugged individualism, free
competition, dog-eat-dog, were palpably anachronistic but the owners of
machinery could devise no other to suit the facts of private ownership.
The world seemed crazily out of joint. The Mellon banks enjoined the virtue
of thrift, while Secretary Mellon urged free spending to set the wheels going
again. In one breath, he counseled that hard work would pull the nation
through, and then closed his mills and factories so that none could work.
Wages were to be maintained, he advised, but costs of production in Mellon
industries must be cut. Government must get out of business, but his
Government lent billions to banks and railroads. There must be stringent
federal economy, he insisted, but it was found necessary to appropriate
millions to keep people from rioting for bread and shaking the pillars of the
social order.
The Mellon philosophy tottered. In its cherished individualism, every
money-eager man was to have equality of opportunity in amassing wealth; but
an ambitious Haskell or Uihlein was beaten or bribed from breaking Aluminum's
monopoly. The Government was to keep its hands strictly out of business; but
it must aid oil concessionaires in Mexico, Venezuela, Colombia and Iraq, even
to the point of armed intervention. Honesty is the best policy, Judge Mellon
had said. So his son had sent Union Trust tellers to prison for defalcations,
while he himself maintained intimate relations with the Magees, the Flinns,
the Quays and Penroses. Prudent investment was the very bulwark of
independence; but hundreds of customers of Union Trust and Mellon National
Bank bought Kreuger & Toll debentures at the solicitation of those
institutions.
Nowhere was the break-up of the old order of values more ,painfully
evident than in international relations. Tariffs were the keystone of
Pennsylvania's industrial supremacy; now they were held partly responsible
for the slow paralysis which gripped in-ternational trade. A true son of
judge Mellon, the new Ambas-sador was insistent that inter-governmental war
debts must be paid, in part at least. Yet these very payments were blamed for
the stagnation of world commerce, and finally they bogged down under the
contradictions they inspired. And if Governments could
practically repudiate debts owed each other, why could not in-dividuals adopt
the same easy code of morals? It was a mortal blow at the basis of the Mellon
fortune.
The new Ambassador had plenty of opportunity to study these contradictions in
his system. He had wrestled with the vexatious problem of war debts before,
as head of the War Debts Commission. His assistant, Garrard Winston, and a
corps of Treasury and State Department officials had worked out the terms for
debt settlements with Britain, France, Italy and the smaller debtors. After
they had finished their work Mellon found himself under two fires. On one
side the cancellationists, international bankers, traders and academicians
echoed the European cry of Uncle Shylock. On the other the Hearst newspapers
and Senators Hiram Johnson and James A. Reed of Missouri asserted that
American taxpayers were being burdened to pay debts the clever Europeans had
evaded.
It all depended on how you calculated the rate of interest. At 5 per cent,
the amount agreed upon at the time the loans were made to Europe, 60 per cent
of the French war debt had been canceled; 80 per cent of the Italian; and 30
per cent of the British. Figured at 4.25 per cent, the amount it cost the
United States Government to raise the money through Liberty Bond issues, the
French cancellation was 53 per cent; the Italian 75 per cent; the British 20
per cent. But at 3 per cent, Mellon's estimate of interest rates during the
next 62 years of debt collection, Italian cancellation covered but 36 per
cent of her debt; French 35 per cent; and Britain was actually paying 4.4 per
cent more than her actual borrowings, with interest.
In answer to the cancellationists, Mellon said that the prearmistice debts of
France, Italy and Belgium had virtually been wiped out. He had little
patience with the argument that the loans were really contributions to a
common cause in the emergency of war. It was clearly stated in the bond that
they were to be repaid, he pointed out. If it were true that American money
had been used instead of American blood, at least, he urged, the
post-armistice borrowings of the Allies must be repaid. As for the allegation
that Uncle Sam was rich and Europe was poor, he retorted that a creditor is
never popular, but a debtor without access to credit is in an unenviable
position. He sympathized with Europe but felt that "recognition of their
external obligations, and undertaking bravely to meet them within their
capacity, is a moral force of great service to permanent prosperity of the
world."
The controversies in which Secretary Mellon had been embroiled six years
earlier in regard to the British war debt settlement gave some piquancy to
his appointment as Ambassador in 1932. He had stated then that the British
post-armistice loans were largely to bolster the Indian rupee and to meet
obligations in the United States to buy food. Winston Churchill and Philip
Snowden, alternate guardians of the British Exchequer, arose to give the lie
direct. Every penny borrowed was for war purposes and the U. S. Treasury had
so certified, retorted Churchill. Snowden assailed the "richest country in
the world which entered the war last," and declared it would be paid for the
whole of the war, even at the cost of mulcting $320,000,000 a year from
Europe. Mellon, arriving in Cherbourg a bit later, said that his statement on
the British debt had been for domestic consumption only.
Professors at Columbia and Princeton entered the lists, protesting that world
trade and world recovery were being imperiled by war debts. Mellon answered
their strictures about loss of transoceanic good will with a statement that
"affection is not a purchasable commodity, neither in international relations
any more than in private life." Of that he was well qualified to speak. He
told the professors that England would receive more in debt payments from her
Allies than she would pay the United States. Chancellor Churchill despatched
a denial to Secretary Kellogg. Kellogg replied that the new controversy was
purely domestic. The professors found Mellon a difficult antagonist; if his
statements left them confused between conflicting interpretations that
America had been generous in cancellation, or had stuck doggedly to the
principle of recognition of debts, he had no further explanation to offer.
The Times was obliged to confess that Mellon had tried to discourage
discussion of the war debt issue, but had actually provoked it by confusing
figures and shifting grounds. In view of the unfortunate echoes from London
every time he spoke, the State Department apparently counseled that silence
was golden.
The golden silence continued when he crossed the ocean as envoy. It was
believed in the capital that the Administration had sent up a trial balloon
when the Washington Post announced, in an inspired story, that Ambassador
Mellon would find adjustment of the war debt question his most immediate and
pressing problem. The response in Congress was so sharp that the President,
facing a desperate campaign for reelection, decided not to broach the subject
at all, even going to the length of barring the war debts question from the
agenda of an international economic conference, called to set the shattered
world on the road to recovery.
Tenacious in his convictions, the new Ambassador would not admit, before the
Pilgrims Society of Great Britain, that his system of production was doomed.
He maintained his faith in "capitalism, or whatever name may be applied to
the system." We have had depressions before and have always recovered, to
press on toward new heights, he said. Yet be seemed to contradict himself by
asserting that the crisis beginning in 1929 was different from preceding
smash-ups.
"Part of our difficulty," he told the Anglo-Americans, "arises because we
look on the present industrial economic crisis as merely a sporadic illness
of the body politic due to conditions in some particular country or section
of the world which can be cured by -application of some magic formula.
Greater difficulty arises because we who are left over from the last century
continue to look on the last decade as merely a prolongation of all that has
gone before. We insist upon trying to make life flow in the same channels as
before the war whereas the years since the war ended are in reality the
beginning of a new era, not the end of the old."
It was an intriguing idea, but unfortunately the Ambassador did not expand
its significance or point the path to the new era. He reverted to the
explanation that industrial crises were caused by war, that deflation must
open the way for recovery. "We still have much to learn," be conceded, "in
the maintenance of a stabler equilibrium in production and consumption and
the better distribution of labor so we shall not always have the painful
spectacle of men willing to work but unable to exchange their services for
the food and clothing they need which the world now produces in such
abundance." But the financial-industrial genius of Union Trust, Aluminum,
Gulf Oil and Standard Steel Car offered no indication that any course but
reliance on immutable economic laws would help any. "Just now," he concluded,
"all of us are hoping for signs of improving conditions as evidence that the
world will soon be on the mend."
The events following his address to the Pilgrims did not suggest that
Mellon's hopes were securely based. Bank failures and insolvencies,
receiverships and financial scandals followed each other in the United States
with monotonous regularity. European correspondents in New York, gloating at
the strange course of events which had plunged the one-time Eldorado into an
abyss of despair, picked up the most tempting morsels of news and cabled at
length. In Washington, their brothers were able to tell a story of a deficit
that daily mounted by millions, of an unhappy Treasury Department unable to
forecast from one week to the next what any given tax would bring in, of a
Congress which raced in circles in an effort to pin the increased tax burdens
on the most desirable victim, from the political viewpoint. These malicious
cables, had they merely tended to amuse the victims of "Uncle Shylock," would
have caused no concern in Washington or Wall Street. Unfortunately, they, and
the events they portrayed, shook the confidence of Europe in America, caused
American securities to be dumped on the market, caused gold to flow out of
Wall Street, and most alarming of all, tended to undermine that majestic
symbol of solidity�the United States dollar.
Hoover, hardly less panicky than the business classes he served, appealed to
the Ambassador to reassure the City. He responded ably at a luncheon given
May 6, 1932, in his honor by the Lord Mayor at the Mansion House. His hundred
auditors represented the top ranks of British finance and industry. "Whenever
I come to the City," he told them, "and find myself once more in the
congenial, familiar surroundings of the business world, my new, unaccustomed
role of Ambassador seems to leave me and, reverting to type, I think and talk
again as a business man with the outlook and anxieties which weigh so heavily
just now on all those charged with carrying forward the business of the
world. And it is as a former business man and banker, therefore, that I would
like to say a word here, so close to the heart of the City, about conditions
in my own country and the progress of events there in recent months."
Reporters, he reminded his audience, gave highlights on foreign affairs that
were apt to mislead the unwary. Britain, if the cables were to be credited,
had tottered on the brink in the autumn of 1931 when it went off gold and
faced the need for a National Government. He, though, never doubted England's
capacity. just so in America. The commotion in Congress did not betray an
unwillingness to balance the budget, but merely an earnest inspection of the
various ways to do it. If many banks were failing, that was confined to
"smaller, weaker institutions." Organized labor, the farmers and every
section of the populace, he added, had accepted wage cuts.
"A great patriotic American," he concluded, "who lived much in England and
loved this country, once said to a compatriot, 'Never sell America short.' I
would reiterate now, what Mr. Morgan said then, and would apply it to England
no less than to my own country. None of us has any means of knowing when and
how we shall emerge from the valley of depression in which the world is now
traveling. But I do know that, as in the past, the day will come when we
shall find ourselves on a more solid economic foundation and the onward march
of progress will be resumed."
Despite the Times' plaudits for "this exhibition of cheerful optimism over
our institutions,)) matters mended not at all, and on May 31 the Ambassador
was obliged to make another effort to calm European fears about America going
off the gold standard. Before the English-speaking Union he asked Britain to
remember that "America is a young country in outlook as well as in years.
Many of our faults are the faults of youth, but we have also the energy and
under ordinary circumstances the boundless optimism that goes with youth, and
a belief in our capacity to achieve that which we set out to do. Today, like
other nations, America is bewildered in the face of forces which have
overwhelmed the world. We have found that the machine civilization which has
been evolved in recent years cannot be made to function with ever-increasing
speed, and that new inventions and over-production have necessitated a period
of slowing down until the world adjusts itself to the conditions that have
arisen since the war.
"At such a time it is well to remind ourselves that the principles upon which
our English-speaking civilization was founded have not changed, and that,
being true to those principles, we should weather this storm as we have
weathered our other storms before."
Such words apparently offered little palpable evidence to indicate that the
men who owned the machinery which had broken down knew how to repair the
damage or set the wheels in motion. Nevertheless they had a comforting,
sedative effect on those who listened and read, and so perhaps served an
humble purpose. Said one English editor, after listening intently: "It was
like trying to catch the whisperings of a ghost, and when you caught what he
had said, he had said nothing particular." Commented another: "In an almost
inaudible voice he carefully read platitudes to the assembled company."
The crisis deepened.
The eminence of his position and the might of his millions raised to a higher
tragic level the spare shrunken form of Andrew Mellon as he wandered through
the economic blizzard hugging to his breast his cherished beliefs in the best
of all possible social systems. In much the same words he used before the
Pilgrims (for Mellon believed in economizing on speeches, with the result
that favorite snatches of his composition were heard over and over) he told
the International Chamber of Commerce of his faith. "I do not believe," he
said, "in any quick or spectacular remedies for the ills from which the world
is suffering, nor do I share the belief that there is anything fundamentally
wrong with the social system under which we have achieved, in this and other
industrialized countries, a degree of economic well-being unprecedented in
the history of the world. Capitalism, or whatever name may be applied to the
system which has been evolved in adapting individual initiative to the
machine age, has its defects, of course, and may be, as has been suggested,
still in its infancy, but there is no disputing the fact that it has produced
an abundance of food and clothing and all the necessities of life, so that
our basic problem is not one involving a basic inability to produce goods
needed to satisfy human wants. We still have much to learn in the maintenance
of production on an even keel and the achievement of a process of orderly and
broad distribution of products and services. These defects in the present
system we shall overcome as we find some way to achieve greater equilibrium
between production and consumption, and a better distribution of labor, so
that we shall not always have the painful spectacle of men willing to work
but unable to find a market for the only commodity which they can exchange
for food and clothing which they need and which the world can produce in such
abundance.
"We shall succeed in time in working out our economic salvation in accordance
with the special needs of our own people, and the social and industrial
system which has been built up. But it Will be done in the future as in the
past by individual initiative, and not by the surrendering of business and
industry to the Government or to any board or group of men temporarily
entrusted with overhead authority. Conditions today are neither so critical
nor so unprecedented as to justify a lack of faith in our capacity for
dealing with them in our accustomed way." The assembled international bankers
applauded appreciatively.
"Our present experience," he continued, "indicates that the machine cannot be
made to function at full speed at all times. Some day, perhaps, we shall have
mastered our economic machine so as to have it under better control." In
conclusion he confessed that "I have no means of knowing when or how we shall
emerge from the valley in which we are now traveling." But he was sure that
eventually "the onward march would be resumed." Undaunted by the avalanche of
disaster that gathered force in the early. months of 1933, the Ambassador, in
his farewell address to the Pilgrims on February 21 reiterated his confidence
in the scheme of things. "The economic system in America," he gravely assured
his listeners, "is in no danger of breaking down, but on the contrary has
such inherent strength that it continues to function efficiently in the face
of the greatest maladjustment the world has ever seen. There is no lack of
production and the processes of distribution continue to operate as usual,
notwithstanding unemployment and reduced buying power." It was an
extraordinary statement, in face of the want of 50,000,000 Americans, and the
imminent collapse of the banking structure, but the Mellons had faced
economic crises in America for more than a hundred years and had come forth
from each greatly refreshed in fortune and confidence.
It cannot be said that the Secretary-Ambassador enlightened his listeners by
presenting new ideas to them or indeed any concepts not hallowed by time.
Adam Smith's economics and Herbert Spencer's sociology were good enough for
Thomas Mellon and they were good enough for his son. He dabbled little in the
fields of pure speculation that had occupied his father's active mind in his
declining years. Being a practical man, he was interested not in theories but
in deeds. Confronted in 1924 by "political quackery" in his opponents'
taxation proposals, he called to mind, in rebuttal, Italy's experiences. That
country, he warned in his main speech of the 1924 campaign, had been
threatened with the same evils after the war. Socialism became a power. There
were strikes. There was unemployment. Workers seized factories. "A strong
hand has since come in to reestablish the Italian Government upon sound
principles and Government by party and not by bargaining," he said. "Steps
have been taken to abandon Government operation of the railroads and to cut
taxes, and the budget this year will be practically balanced." Two years
later he had not changed his opinion. "Mussolini," he said, "is making a new
nation out of Italy. He is one of the world's most vigorous personalities.
Many of his measures are unique indeed, but they are effective."
Confronted by that other experiment in new forms of government, Soviet
Russia, Mellon lost his patience. His opinion of Russia, unlike that of
Italy, was not based on personal observation. Warning of the evils of
taxation in the higher brackets, he declared that "in Russia the experiment
[of Socialism] has brought destruction, final and complete. There is no
trade, no industry, no agriculture, no religion�a return to barbarism," he
explained. "The millennium was promised to the Russian peasant; he has
received tyranny, starvation and death." Curiously enough, within a few years
of this observation, his Koppers Company was supervising�in the land of final
and complete destruction-the erection of the largest coke and gas plant in
all Europe; his Massachusetts utilities were accused in Congress of importing
Soviet coal; his Canadian aluminum company was bartering aluminum wire for
Soviet oil; and he himself was obliged as Secretary to embargo the
importation of Soviet matches as likely to injure the American industry.
Bolshevism was no danger in Germany, he felt sure, because it was
"incompatible with the German temperament." The doles in England, he
reported, militated against the unemployed voluntarily going to work. Worse,
it had played a part in strikes, he had been told, because strikers receiving
the dolt found that a more agreeable way of making a living than working
honestly.
If working men would save, a large part of the so-called labor problem would
disappear, Mellon believed. By thrift they could accumulate enough to climb
out of the mills and factories and assure themselves a modest living and a
competence against indigence in old age. Congratulating a trade union bank on
its second anniversary�it went under in 1931-he wrote: "Institutions such as
the Federation Bank of New York bear reassuring testimony that the average
man and woman is learning the necessity of saving and accumulating capital if
they would get the comforts of life for themselves and their families."
He expanded these ideas in an address before the National Electric Light
Association. "Both labor and capital," Mellon asserted, "are beginning to
realize that they have common interests in building up great industries which
are sources of wealth for all, and that in America with the opportunities it
offers and the constant transition from poverty to wealth, there is no Place
for class antagonisms or class warfare. Labor in this country, unlike labor
in some of the European countries, long ago learned that no man can lift
himself by his bootstraps, that industry cannot pay high wages even under the
threats of strikes unless that industry is prosperous. Labor as well as
capital must think in constant terms and must act in harmony with and not in
antagonism to those great economic laws which work so inexorably whether we
like them or not. Labor in America is not only maintaining a high standard of
living but it is also banking a part of its wages, as evidenced by the steady
growth of savings deposits. It is organizing its own banks and buying shares
in corporations in which it works, and in this way workers are acquiring a
real partnership in the business in which they are employed."
While Mellon's servants packed up the choice bits of furniture and art
treasures which were to grace the Embassy building in London given the United
States Government by J. Pierpont Morgan, his successor in the Treasury
wrestled with fiscal problems still unsolved. The Greatest Secretary since
Hamilton had achieved another distinction, that of leaving the greatest peace
time deficit in the history of the country. Ogden Mills estimated it at
nearly $2,500,000,000 for 1931-32, and for 1932-33 at somewhat under
$2,000,000,000. The deficit for the year ending June -31, 1931, was
$902,000,000 against Mellon's estimate of a $30,000,000 surplus
What followed now was the bitterest blow of all. Mellon had not been away
from the Treasury four months when all the results of his ten-year struggle
for easier burdens on wealth had been wiped out. In one stroke, Congress,
searching desperately to balance the budget, jerked up rates to the levels
which existed when the Pittsburgh banker first went to Washington. Gone was
the 20 per cent maximum surtax on incomes of $100,000 and more for which he
had fought with all his prestige and resourcefulness from 1921 to 1926. In
its place was imposed a 55 per cent levy on incomes above $1,000,000. The
inheritance tax was lifted from 25 to 45 per cent. The corporation tax, which
had been pared down to 12 per cent, went up to 13.75 per cent and an added
impost was piled on consolidated returns, to make it 14.5 per cent.
The bare millionaire with an income Of $50,000 a year now would pay $8,600 a
year, against the Mellon Plan levy of $4,588,75. The plutocrat with his
$1,000,000 yearly income, would Pay $571,100 to the Treasury, against a
former $240,768.75
Nor could a man give away his fortune, scatheless of Government tax, as in
the halcyon days of Mellon rule. The Government now insisted on $140,000 from
a $1,000,000 gift and $3,333,333 of a $10,000,000 gift.
The immediate exactions of the law did not worry the financier so much as its
implications. Fortunately the Mellons would not have to pay much of a tax in
these hard times. But there was always a lag in Congressional action; once
the country emerged from the "valley," it might take another few years' fight
by another sturdy champion of fiscal normalcy to restore the easier rates.
By December, 1931, Mellon saw the inevitability of the tax rise and agreed
that the surtax maximum would have to go up to 40 per cent, and the
corporation tax to 12.5 per cent. After he quit office however it became
apparent that even the doubling of the surtax was not enough. In common with
other Administration leaders, Mellon favored the sales tax rather than
increased income taxes. The superiority of the sales tax was immediately
apparent: people were still buying food and clothing, and some could still
afford the necessary luxuries of the machine age. Such a tax was certain to
return substantial income. Its psychological effects would be even better.
People would realize that they were paying directly for Governmental
expenditures and would demand a drastic curtailment in general social
expenditures. That would curb extravagance and a too open-handed dispensing
of federal charity which hither-to the populace supposed was coming from the
pockets of the rich. It was uncertain however whether such a general tax
would react favorably upon the electorate in the coming 1932 Presidential
election, and Mellon made no overt recommendation.
While the Mellon Plan of taxation was being discarded overnight, the Mellon
political machine creaked on, rebuffed by Pittsburgh voters but still
maintaining control of the Pennsylvania legislature by virtue of alliance
with Joe Grundy's Manufacturers Association. The defeat late in 1931 of Joe
Armstrong and James J. Coyne, the Mellon candidates for county commissioner,
plumbed the depths of the Mellons' fall from popular favor in their own home
city. A few months later Mayor Charley Kline, Mellon henchman, was convicted
of graft and saved from a sixmonth sentence in prison only by grace of the
court, which heeded physicians' counsel. He was ousted from office and fined
$5,000.
The Mellon machine made a quick comeback. Coyne, a state senator,
acknowledged leader of the Mellon forces in western Pennsylvania, dissolved
the Kline apparatus and took charge of the city. In the state legislative
session called in the desperate winter of 1932-33, the Mellon-Grundy machine
scored brilliant victories in defeating old age pension, minimum wage and
child labor bills demanded by widespread public agitation. When Roosevelt's
election roused the Pittsburgh Democratic party from its somnolence, it was
discovered that the local Democratic leader and the engineer of the Mellon
machine were political bedfellows. Postmaster-General Farley, advising his
cohorts in the Iron City, exhorted them to assert their independence of
entangling alliances. The cynical, however, maintained confidence in the
ability of the Mellon machine to cope with the resurrected local opposition
party through adroit manipulation of its leaders, long content with crumbs
from the machine's generous table.
Among the commonalty of Pittsburgh, the Mellon name had never excited that
glow of local pride which an outsider might have expected. Perhaps, as the
Secretary remarked in the field of international affairs, a creditor is never
popular; certainly in the course of sixty years a family of money lenders can
arouse its fun share of distrust and animosity in a city dependent upon its
local dei Medici for ready cash.
A variety of reasons conspired to raise the mob against its magnificos.
Perhaps the failure of the Bank of Pittsburgh aroused the liveliest
resentment, uniting those of high and low degree, outside the Mellon
hierarchy, into a solid ring of bitter criticism against the family.
The Bank of Pittsburgh was the pride of the city's better classes, a token of
Pittsburgh's solidity, a tie that bound the great industrial center at the
head of the Ohio with its early days when it was little more than a trading
post on the western frontier. Established in 1810 it was the oldest bank west
of the Alleghenies. The building which it occupied in 1831 was the first bank
building to be erected in the United States outside New York and
Philadelphia. In a glow of patriotic pride, the Pittsburgh Chamber of
Commerce in 1931 asserted that "it is the rare and most enviable distinction
of the Bank of Pittsburgh that among other banks of the country, it is one of
the very few which never suspended specie payments. In the devastation of the
panics of 1837 and 18574 it not only excited astonishment of banks all over
the country by maintaining regular dividends, but met every obligation with
dollar for dollar in coin." When T. Mellon & Sons suspended payments in 1873,
the Bank of Pittsburgh was doing business as usual.
Its president in 1931 was Harrison Nesbit. By some he was considered an
aggressive banker who was pushing the Mellons hard by his liberal credit
policy. Others held him to be a plunger. In any event the catastrophes of
1931, complicated by boom time realty purchases in downtown Pittsburgh,
shoved his bank into an insolvent position.
The shoguns of finance in the Iron City, the Mellons and the Hillmans,
considered the plight of their city's oldest bank. It was unthinkable that it
should be allowed to stagger to ruin. The collapse of the Bank of Pittsburgh
would bring crashing down about it a score of smaller banks which deposited
with it. Examiners for the two banking chains surveyed the institution's
assets and submitted offers for its consolidation with theirs. The Hillman
interests finally withdrew when it seemed that �the Mellons were the more
eager.
Richard B. Mellon, W. L. Mellon and H. C. McEldowney conducted the
negotiations. True, there would be some loss involved, but the good will of
the many thousands of depositors in the Bank of Pittsburgh and the dozen or
more little banks which clustered about it was a tangible thing, to be
appraised in dollars and cents and in the Mellon family's prestige. An
agreement was made to protect the insolvent bank's depositors within the
shelter of the Mellon financial structure. Only A. W. Mellon's approval was
needed now to complete the deal.
The Secretary turned thumbs down. The bank was not a good investment. And
anyway, its depositors would have to turn to the Mellon National Bank. "We'll
get their money anyway," was a paraphrase of the Secretary's logic.
The Bank of Pittsburgh was allowed to fail. Within a month a score of smaller
banks closed their doors. Tens of thousands of Pittsburghers, most of them
workers and small business people, found their savings and reserve funds tied
up in the bitterest winter in the city's memory.
In one regard Andrew Mellon was right. The Mellon National Bank had to hire
extra clerks and open extra windows to take care of new accounts.
Terror-stricken people took their savings out of still solvent banks to
entrust them with the institution whose proprietor was Secretary of the
Treasury.
Fury swept through the ranks of Pittsburgh business and industrial leaders.
President Crawford of the McKeesport Tinplate Company, a few days after the
failure of the Bank of Pittsburgh, switched his company's huge account from
the Mellons to the Hillmans, and others followed. When the bank statements
were filed at the end of 1931, it was found that the Mellon National Bank's
deposits�despite the influx of small accounts�had dropped from $181,000,000
to $153,000,000. On the other hand, the Hillmans' First National Bank had
held its deposits practically intact in that trying period.
Opposition bankers, finding the Mellon charm broken, became openly critical
of the workings of the National Credit Corporation in Pittsburgh. President
Chaplin of the Colonial Trust Company, in the Hillman orbit, spoke bitterly
of the Mellon control of the federal agency which had been erected hastily by
Hoover and the Treasury to save certain banks. A. E. Braun, president of the
Farmers Deposit National Bank, generally regarded as a Mellon bank, was
director for the Pittsburgh area, and with two Mellon bankers comprised a
majority on the board of five members. Pittsburgh banks had subscribed
$3,300,000 to the National Credit Corporation, only to see the
Mellon-controlled board send much of it to the Pacific Coast while banks
languished and expired at home. President Chaplin was fearful that the new
Reconstruction Finance Corporation would work no better in the Pittsburgh
area if the ruthlessly deflationary Mellon policy were to be followed. In the
winter of 1932 Pittsburgh depositors suffered a second major shock when the
Diamond and the Monongahela, old-established banks, went under.
Whatever Richard B. Mellon may have thought of the wisdom of his brother's
course in the Bank of Pittsburgh debacle, it was safe to assume that the
Secretary himself was unperturbed, as usual. The weak and the failures would
always hate the strong and the successful. In trying times like these each
man and each institution must stand on its own legs. The strong owed little
to the weak in such an emergency; indeed it was the result of immutable
economic laws that the strong became stronger after such cataclysms.
When Union Trust in 1929 joined the banking syndicate which sold to American
investors $50,000,000 in Kreuger & Toll debentures, it added no luster to the
name of the most distinguished financier of his time. Old judge Mellon, had
he known that his sons' bank was peddling a pig in a poke to trusting
investors, would most certainly have marched out of his grave to give them a
lesson in a banker's responsibility to his clients.
Times had changed though since judge Mellon confessed that his inability to
meet his obligations in 1873 was the most humiliating experience in his life.
So far as the public knew, neither Andrew Mellon nor his brother felt the
slightest compunction about Union Trust having sold over its counter at 98
debentures which later were quoted at 1/32 on the New York Stock Exchange. In
any event Union Trust did not bother to apologize to investors for its
carelessness in helping Ivar Kreuger swindle American investors out of
$250,000,000.
The banking syndicate which passed off the so-called Secured Gold Debentures
of Kreuger & Toll lacked nothing in reputability. Its members were Lee,
Higginson & Company, Guaranty Company, National City Company, Brown Brothers
& Company, Dillon, Read & Company and Union Trust Company of Pittsburgh.
Securities worth $60,000,000 were pledged for the loan. It was provided
however that other securities could be substituted. It was astonishing that
financial gentlemen of such justly high rating as the partners of Lee,
Higginson and the proprietors of Union Trust, together with their legal
advisers, could have permitted such an extraordinary choice of eligible
substitute securities. Even the German Forced Loan of 1922-worth $5 on the
million-was acceptable. Kreuger, hard-pressed, took advantage of this feature
and substituted $22,000,000 in Jugoslav and $23,848,000 in Hungarian
Co6perative Society issues, along with similar treasures, for the original
solid Belgian, French and Prussian securities.
At the bottom of the advertisement in the Pittsburgh newspapers inviting
investors to share in Union Trust's offering of these precious debentures
appeared, in small type, the following words: "The statements contained in
this advertisement while not guaranteed, are based upon information and
advice which we believe accurate and reliable."
After Ivar Kreuger turned his pistol on himself, it was found that very few
of his statements were either accurate or reliable. The hard-headed American
bankers who passed his securities along to the investing public had never
bothered to inquire. Their gullibility was amazing. Kreuger had told them
that his Swedish bank would resent foreign accountants prying into its books.
The American bankers agreed that such inquisitiveness would be sheer
impertinence.
Guardians of the people's faith in investment bankers were properly shocked.
Bertie C. Forbes, financial columnist for the Hearst papers, wrote: "Any
crook who issues spurious money is sent to jail for a long term of years. But
any Tom, Dick or Harry can issue spurious bonds or stocks without fear of
punishment. . . . They do these things better in Britain. There security
buyers are protected by law. There the issuers of prospectuses must swear
that every fact and figure is strictly true. If events prove that any factor
figure was not true, the offenders are slapped into prison."
Forbes was not specific, and no one ventured to suggest that the Mellons be
held personally responsible for their small type assurances to investors.
Indeed had it not been specifically stated that their information about
Kreuger & Toll and its debentures was "not guaranteed"?
Union Trust, in its own investments, was more prudent. When in conjunction
with National City, Bankers Trust and Continental Illinois, it lent
$4,000,000 to another Kreuger creation, the International Match Company, it
very wisely insisted on cold security Of 350,000 shares of Diamond Match
Company stock, for which nothing else could be substituted. When
International Match was thrown into receivership, Union Trust and its
associates proceeded to sell the pledged stock in satisfaction of their loan.
It was noted, too, that when the list of principal holders of Kreuger & Toll
debentures was made public, the name of Union Trust was absent. It was a
tribute to the business judgment of the Mellons that their bank declined to
share in the feast which it spread for Pittsburgh investors.
Apparently it required no superhuman penetration to ascertain the real status
of Ivar Kreuger's ventures. As far back as 1929 Maehler's Bank in Amsterdam
had been requested to lend the match king 20,000,000 kroner. The Dutch
bankers investigated, turned thumbs down, and quietly disposed of whatever
Kreuger holdings they already had. In America however the billion-dollar
promoter hobnobbed with the elite of Wall Street and was the honored guest of
Herbert Hoover until within a few weeks of his death.
The possibility that Union Trust and its fellow syndicate members might have
unpleasantness ahead was seen when Bainbridge Colby and Samuel Untermyer
formed an independent protective committee for Kreuger & Toll debentures
holders. "Our Counsel," they said, "advise that if Kreuger & Toll debentures
were purchased in reliance upon material representations which on
investigation are found to have been false, a purchaser on discovering the
falsity thereof may rescind or cancel his purchase and recover back the
purchase price paid by him." According to judicial decisions, it was not even
necessary to prove that the bankers knew their representations to be false
when they made them. The simple fact that the goods were not as represented
was held sufficient to void the contract. Such an action was begun by an
International Match debenture holder against Lee, Higginson & Company and
Guaranty Company in New York.
Kreuger & Toll debentures were merely one of a list of choice offerings laid
before the Pittsburgh investors by the Mellon banks. There was also stock in
the Alleghany Corporation, a Morgan tidbit, sold at 24 and quoted three years
later at .375. Or Lone Star Gas, sold at 98.75, quoted at 7.625.
Not even the securities of Mellon corporations, in which the Pittsburgh banks
specialized, escaped the deflation. Those who bought Aluminum stock in 1925
at 97.5 saw its market value shrink to 22 in 1932. Koppers Gas & Coke issues,
sold at 96, withered to half that market value. Solvay American Investors
Corporation declined from 100 its sales price, to nearly half. The 1929 issue
Of $20,000,000 in Pittsburgh Coal bonds, sold at 100, was quoted in 1932 at
68.
--[cont]--
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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