-Caveat Lector- an excerpt from: The Founding Fortunes Michael Patrick Allen©1987 All rights reserved. E. P Dutton ISBN 0-525-48484-1 ----- An excellant and interesting book. Om K --[4]-- THE MELLON FAMILY Of the three big dynasties, certainly the least well known is the Mellon family. This relative obscurity is somewhat paradoxical in light of the fact that the Mellons are, without much doubt, the wealthiest of these three families. Unlike most other corporate rich families, whose fortunes stem primarily from their investments in a single company or industry, the Mellons have been major stockholders in a number of otherwise unrelated firms. They were once major stockholders in Gulf Oil Company, and their principal investments still include large stockholdings in such major corporations as Aluminum Company of America, Mellon National Bank, Koppers, General Reinsurance, and First Boston Corporation. This diversified fortune was compiled by two brothers, Andrew W. and Richard B. Mellon. In the words of David E. Koskoff, a family biographer, they made "one of the most unlikely and one of the most successful partnerships in history." They were as unlike in appearance as they were in temperament: A. W. Mellon, the older of the two, was thin and extremely shy, whereas his brother, R. B. Mellon, was stocky and gregarious. According to this same biographer, "about the only thing the two seemed to have in common was their incessant acquisitiveness." They may have inherited this trait from their father, Thomas Mellon, a Pittsburgh banker whose firm, T. Mellon and Sons, would later form the nucleus of the presentday Mellon National Bank. Using the modest fortune amassed by their father as a foundation, A. W. and R. B. Mellon went on to accumulate several fortunes of their own. The Mellon brothers started out as bankers, but they soon became venture capitalists as well. Whenever an especially promising company came to T. Mellon and Sons for a loan to finance expansion, the Mellons would also buy a large block of stock in the company. By virtue of their position as both major creditors and principal stockholders, they were usually able to exercise control over these companies. In this manner, the Mellon brothers amassed their first real fortune in a new industry: aluminum. In 1889, Andrew W. Mellon was approached by a group of investors representing the Pittsburgh Reduction Company, a firm formed to exploit a newly developed process for refining aluminum. T. Mellon and Sons extended the firm, later to be renamed the Aluminum Company of America, a line of credit, and A. W. Mellon purchased some stock in the company. The Mellons gradually increased their stockholdings in the growing firm from about 12 percent in 1894 to over 26 percent by 1917. Although both Mellons served as directors of the company, they left the actual management of the firm to others. As the company increased its control over the burgeoning aluminum industry, the Mellons increased their control over the company. By 1937, the Mellon family controlled 35 percent of the common stock of Aluminum Company of America, as well as 24 percent of its preferred stock, worth a total of $72 million in the depressed stock market of the period. The accumulation of a fortune in aluminum was but a prelude to the accumulation of an even larger fortune in oil. In 1901, James M. Guffey, a veteran oilman, came to T. Mellon and Sons for a loan to continue his drilling operations near Beaumont, Texas. Later that same year, using money lent by the Mellons, Guffey and his associates brought in the first major oil well in the state of Texas. However, they soon needed more money to develop the field and to construct a pipeline for transporting the oil. In order to raise the necessary capital, the Mellons organized the J.M. Guffey Petroleum Company, which acquired the interests of Guffey and his associates in the new field. Andrew W. and Richard B. Mellon also bought 13 percent of its stock. In the years that followed, they helped the company finance the construction of an oil refinery on the Gulf Coast and new exploration activities in Oklahoma. However, Guffey soon demonstrated his limitations as a manager, and the Mellon brothers were forced to send their cousin, William L. Mellon, to Texas in order to restore the company to profitability. During this period, Guffey borrowed heavily from the Mellons, pledging his stock in the company as collateral. In 1907, the Mellons reorganized the J.M. Guffey Petroleum Company and its affiliates as the Gulf Oil Company. They also increased their stockholdings in the new company, largely by canceling their loans to Guffey in exchange for the stock they held as collateral. By 1939, the Mellon family, including William L. Mellon, controlled 70 percent of the common stock in Gulf Oil, worth $240 million. Although Gulf Oil and Aluminum Company of America were to become the cornerstones of the Mellon family fortune, the "incessant acquisitiveness" of the Mellon brothers led them to invest in a number of other promising companies as well. While they were consolidating their control over Gulf Oil and Alcoa, Andrew W. and Richard B. Mellon were also investing heavily in several other large corporations including Koppers, a chemical firm; Carborundum, an abrasives company; and Pullman, the railroad car manufacturer. Their 52 percent stake in Koppers alone was worth $37 million by 1939. In most cases, the pattern of investment and control was the same. The Mellon brothers began by lending money to small companies in need of capital for expansion. However, they often bought enough stock in these companies to become their controlling stockholders. They then asserted active control over these firms, serving as directors and appointing capable and trusted associates as managers. In 1902, T. Mellon and Sons itself was converted, through a series of mergers with affiliated banks and trust companies, into Mellon National Bank. The Mellon brothers emerged with 42 percent of the stock in the new bank holding company. They also owned all of the stock in both Mellon Securities and Mellon Indemnity, two companies that had been investment and insurance affiliates of Mellon National Bank. Having succeeded in amassing one of the most monumental fortunes in American history, the Mellon brothers soon set about safeguarding it from the estate taxes. For example, Andrew W. Mellon created Coalesced Company and Richard B. Mellon created Aloxite Corporation as family holding companies in order to transfer most of their assets to their children. By the time he passed away in 1933, Richard B. Mellon had already given the bulk of his stock in the various Mellon enterprises to his two children, Richard K. Mellon and Sarah Mellon Scaife, Nevertheless, he left an estate of about $86 million, the bulk of which, after payment of relatively modest estate taxes, was divided equally among his wife and children. Perhaps because he had served as the secretary of the Treasury in three consecutive administrations, Andrew W. Mellon knew more about estate taxes and how to avoid them. When he died in 1937, he left an estate of only $37 million, all of which he bequeathed to a family foundation. Of course, he had already transferred the bulk of his stock in the Mellon companies to his two children, Paul Mellon and Ailsa Mellon Bruce. Because the Mellon brothers were equal partners in most of their business ventures, their children inherited almost equal fortunes. By 1939, Richard K. Mellon and Sarah Mellon Scaife were worth $156 million in the stock of just three companies: Gulf Oil, Aluminum Company of America, and Koppers. Their cousins, Paul Mellon and Ailsa Mellon Bruce, were worth $136 million in the stock of these same three corporations. These two branches of the Mellon family also held large blocks of stock in several other enterprises such as Mellon National Bank, Carborundum, and Pullman. With the passing of the Mellon brothers, the task of overseeing the extensive investments of the family fell largely to Richard K. Mellon, the son of Richard B. Mellon. He was not only the eldest of the four wealthy Mellon cousins but also the only one to show any interest in business or the affairs of the Mellon companies. After flunking out of Princeton his first term there, R. K. Mellon went to work for his father at Mellon National Bank, where he became a vice president when he was only twenty-nine years old. When his father died four years later, he took over as president. He later resigned that post, but he never lost interest in the Mellon companies. He continued to serve as a director of Gulf Oil, Aluminum Company of America, Koppers, and Mellon National Bank for many years. Moreover, his involvement with these firms was far from passive. When a reporter asked him about his occupation, he once replied, "I hire company presidents." Although he was actively involved in the redevelopment of downtown Pittsburgh, R. K. Mellon actually lived at Rolling Rock Farms, an 18,000 acre estate near Ligonier, fifty miles outside the city. When he died in 1970, he left an estate of over $226 million. He bequeathed half of it to his wife, and the other half to his Richard K. Mellon Foundation. In this way, all of it escaped federal estate taxes. The bulk of his fortune had been transferred into a series of massive trusts for his children many years earlier. The only Mellon in a position to challenge Richard K. Mellon as the head of the Mellon financial empire was his equally wealthy cousin, Paul Mellon. As the only son of Andrew W. Mellon, he had been encouraged from an early age to enter business, but he was never able to generate much enthusiasm for the mundane details of finance and industry. After graduating from Yale, where he became known primarily as a poet, he went on to Cambridge. On returning to Amer-ica, Paul admitted to reporters, "there are other members of our family who are far more fitted than I am to look after the family interests." Nevertheless, he kept a promise he had made to his father and went to work for Mellon National Bank. Within a couple of years, Paul was a director of several of the Mellon companies. After his father died, however, Paul gradually resigned all of his directorships and turned over his business affairs to a staff of financial advisers. He then retired to Oak Spring, his 4,000-acre estate near Upperville, Virginia. The estate also houses Rokeby Stables, a highly successful horse-breeding operation. In addition to breeding and racing thor-oughbred horses, he has gained considerable attention as an art collec-tor. In 1967, Paul gave most of his collection of English art, valued at over $35 million, to Yale University. He threw in another $10 million to build a special museum to house the collection. Paul has yet to part with his collection of French impressionist and postimpres-sionist art, which is undoubtedly the biggest and best collection in private hands. Richard K. Mellon and Paul Mellon controlled only half of the fortune left by their fathers. The other half was held by their sisters. Sarah Mellon, the sister of Richard K. Mellon, married Alan Scaife, the scion of an established Pittsburgh family. Over the years, he served as a director of several Mellon companies and foundations. By all accounts, Sarah was intelligent but extremely shy. As one of the richest women in the world, she became accustomed to being cared for by servants. According to her own daughter, "she did not know how to cook; she couldn't drive." Although she devoted the requisite amount of time to her art collection and her philanthropies, Sarah found more pleasure in entertaining and traveling. When she died in 1965, she left $66 million to her Sarah Mellon Scaife Foundation. Ailsa Mellon, the sister of Paul Mellon, married David K. Bruce, a young foreign service officer. Soon after their marriage, Ailsa Mellon Bruce was stricken by an undiagnosed illness that rendered her, in the words of her husband, a "semi-invalid." They were eventually divorced, and David Bruce went on to a distinguished diplomatic career. After the divorce, Ailsa became almost a recluse. At one time, she owned three apartments in New York, two houses in Connecticut, an estate on Long Island, and a residence in Palm Beach. Ailsa apparently took a great deal of interest in her philanthropies and her art collection, much of which she donated to the National Gallery of Art. When she died in 1969, she left the bulk of her estate, valued at $570 million, to her Avalon Foundation. This foundation was later merged with two smaller foundations established by her brother to form the giant Andrew W. Mellon Foundation. At this point, much of the Mellon fortune is in the hands of the six grandchildren of Richard B. Mellon and the three grandchildren of Andrew W. Mellon. On the Richard B. Mellon side of the family, perhaps the wealthiest members of this generation are the two children of Sarah Mellon Scaife. Her son, Richard M. Scaife, is a newspaper publisher, but he has gained prominence primarily for his political largesse. A conservative Republican, Richard Scaife has given roughly $144 million of family money to various political organizations. The other members of this branch of the Mellon family include the four children of Richard K. Mellon. They control the massive Richard King Mellon Foundation, and one of the sons, Seward Prosser Mellon, serves as a director of Mellon National Bank. On the Andrew W. Mellon side of the family, Ailsa Mellon Bruce had only one child, Audrey Bruce Currier. Under the tutelage of her husband, Stephen Currier, she became an early financial contributor to the civil, rights movement. Both of the Curriers were lost at sea aboard a private airplane in 1967, and their three children are now the sole beneficiaries of several substantial trusts. Paul Mellon, the brother of Ailsa, has two children. His son, Timothy Mellon, has gained notoriety recently by buying three marginal railroads for $44 million in order to create Guilford Transportation, a railway system with over 2,500 miles of track in six Northeast states. Catherine Mellon, the daughter of Paul Mellon, married and eventually divorced John Warner, who later married and divorced the actress Elizabeth Taylor. Not all members of the Mellon family are rich. Among the descendants of Thomas A. Mellon, only two of the brothers, Andrew W. and Richard B. Mellon, were brought into the bank. The two other brothers became wealthy, but they did not amass great fortunes. Consequently, their descendants must contend with the disadvantages of the Mellon name without the advantages of the Mellon wealth. The only exceptions are the children of William L. Mellon, the nephew of A. W. and R. B. Mellon. William Mellon served his uncles well when he went to Texas in 1902 to manage and oversee their investments in the burgeoning oil industry. He was eventually made chairman of Gulf Oil and accumulated a relatively small block of stock in the company. By 1937, his 4 percent stake in Gulf Oil was worth over $12 million. It was a small fortune by Mellon standards, but it was enough to provide for his four children. One of them, William L. Mellon, Jr., astounded other members of the family when he announced that he had decided to follow the example of Albert Schweitzer. He sold his ranch in Arizona and went back to school, at age thirty-seven, to become a doctor. After his graduation from Tulane University Medical School in 1953, he and his wife moved to Haiti, where they built a hospital for the poor. Altogether, the descendants of William L. Mellon, Sr., may now be worth as much as $300 million. Over the past several decades, the Mellon fortune has become increasingly diversified as the family has sold much of their stock in the original Mellon companies and reinvested the proceeds in other stocks, bonds, and real estate. Nevertheless, the vast bulk of the Mellon fortune can be traced to large family stockholdings in Gulf Oil. In 1937, the 70 percent of Gulf Oil stock owned or controlled by the Mellons was worth $240 million. In the decades that followed, however, the Mellons gradually disposed of much of this stock through a series of public offerings and countless private sales. In the six secondary offerings of Gulf Oil held by the Mellons since 1943, family members sold Gulf stock worth over $350 million. As a result, by the time of the last public offering in 1972, the Mellons and their foundations had reduced their stake in Gulf Oil to about 21 percent. If the proceeds from these stock sales were subsequently reinvested in diversified portfolios of stocks and bonds, they would now be worth at least $1.1 billion. This total excludes, of course, the stock portfolios of the various Mellon foundations. By 1984, when Gulf Oil was acquired by Chevron, members of the Mellon family probably owned no more than 12 percent of the company, for which they received at least $1.5 billion in cash. This is the latest in a series of cash infusions received by the Mellons. For example, family members received roughly $150 million between 1951 and 1961 for their stock in Alcan Aluminum, which they were forced to sell a's the result of an antitrust settlement. Similarly, the Mellons received over $100 million for their remaining 20 percent stake in Carborundum when it was acquired by another company in 1978. Although the Mellons have systematically diversified their investment portfolios, some of the original Mellon companies still constitute part of the family fortune. For example, the Mellons have kept much of their stock in Aluminum Company of America. The only public stock offering by the family occurred in 1972, when several family members and foundations sold about a third of their stake for $96 million. At present, the Mellons probably own about 17 percent of the stock in Aluminum Company of America, worth close to $500 million. Similarly, the Mellons have retained almost all of their stock in Mellon National Corporation. As the result of recent mergers, the Mellons now probably own no more than 23 percent of the stock in Mellon National, worth about $350 million. The Mellons also own about 10 percent of Koppers, currently worth $60 million. In general, the four cousins held roughly equal shares in the various Mellon companies but there were a few notable exceptions. As the result of an exchange of stock within the family in 1933, Richard K. Mellon and Sarah Mellon Scaife wound up the sole owners of two family financial companies, Mellon Indemnity and Mellon Securities. In 1946, these two companies were merged into General Reinsurance Company and First Boston Corporation, respectively. As a result of these mergers, the heirs of Richard K. Mellon and Sarah Mellon Scaife currently own about 6 percent of First Boston and 4 percent of General Reinsurance. Altogether, these two investments are now worth just over $210 million. Although the Mellons no longer exert active control over their companies, family members or their advisers continue to serve as directors of such major corporations as Aluminum Company of America, Mellon National, Koppers, General Reinsurance, and First Boston. The only entity capable of coordinating the financial affairs of the family at present is Mellon National Bank, whose trust department still administers much of the family fortune. Foundations endowed by members of the family are also large stockholders in many of the original Mellon companies. The largest of these foundations is the Andrew W. Mellon Foundation with assets of $816 million in 1981. The only two other large Mellon foundations are the Richard King Mellon Foundation, with assets of $357 million in 1983, and the Sarah Scaife Foundation, with assets of $112 million in 1981. Family members and their associates serve as trustees and officers of these foundations. As a rule, however, the Mellons now prefer to be passive investors. As one of the younger Mellons put it, "in families like ours what life becomes is holding on to what you've got." So far, the Mellons have succeeded in holding on to the bulk of their fortune. The stock in the original Mellon companies still owned by the family is now worth $1.1 billion. In addition, their proceeds from various stock sales, after appreciation, come to over $3.2 billion, most of this from their Gulf Oil stock. Last but not least, family members have received at least $2.1 billion in dividend income since 1937 from their stock in Gulf Oil, Aluminum Company of America, and Mellon National alone. Altogether, the Mellons are now worth at least $6 billion. CONTINUITY AND CHANGE There can be little doubt that the three major dynasties of a half century ago are still alive and quite wealthy today. Indeed, their massive fortunes have appreciated greatly over the decades, although perhaps only enough to keep pace with inflation. Even today, however, only a handful of corporate rich families control as much wealth as the Rockefeller, du Pont, and Mellon families. Income and estate taxes have, of course, taken their toll on these fortunes, but they have hardly eliminated them. The continuity of these fortunes over the past several decades is largely attributable to the fact that these families did not hesitate to employ elaborate legal strategies to avoid these taxes. In particular, the members of corporate rich families often resorted to the creation of generation-skipping trusts. They also created family holding companies to avoid estate taxes and consolidate the stockholdings of family members, although most of these holding companies were dissolved once they had served their purpose. In general, parents employed a variety of legal maneuvers to transfer much of their wealth to their children and grandchildren long before they died. Only after their heirs were provided for did they bequeath their residual estates to family foundations. In this way, they were able to avoid estate taxes and keep the last remains of their wealth under family control. As a result, these families now exercise enormous social and political power by virtue of their control over large family foundations. The most significant consequence of the historical evolution of corporate rich families has been the change in their relationship to those companies that were the original sources of their fortunes. The Rockefellers long ago severed their ties with the various Standard Oil companies and have concentrated their attention in recent years on Rockefeller Group, the family holding company for their real estate and broadcasting properties. Similarly, although various members of the du Pont family remained actively involved in management of Du Pont Company until relatively recently, they are now content to have several family members serve simply as directors. Last but not least, the Mellons, who only rarely became involved as managers of the companies they controlled, have family financial advisers represent them as directors. As a rule, these families have largely relinquished the management of the family firms to others, although family members and their financial advisers often continue to serve as directors. Nevertheless, the current investment strategy among these three corporate rich families is clearly one of diversification. Stock in the original family companies has gradually been sold, and the proceeds have been reinvested in diversified portfolios that contain a combination of growth stocks for long-term capital appreciation as well as municipal bonds for tax- free income. The fortunes of these three dynastic families and the relationships of these families to their companies have been altered in the past several decades largely as a result of fundamental transformations in their structures as families. They are larger and more complex as kinship groups than ever before. In the past five decades, two new generations of family members have reached maturity. In the late 1930s, the du Pont clan consisted of a few aging siblings and scores of adult cousins. Today, it is now a clan comprising well over a hundred adult members, most of whom are only first and second cousins to one another. Similarly, the Mellon family once consisted primarily of four cousins who were still young adults. It now comprises primarily a few second and third cousins. In the Rockefeller family, there were only six young siblings and their father. Currently, most of the Rockefellers are first cousins. Despite the large size of these families and the remoteness of their kinship ties, family members have managed to maintain a strong sense of family unity, largely because of their common economic interests. These kinship ties are also reinforced by a number of shared institutional arrangements involving family investment offices, family trusts, and family foundations. However, these family ties become more tenuous with each successive generation. Indeed, as these families have developed into large and complex clans, they have become divided into a series of smaller and more cohesive branches. Of course, none of the younger members of these families will ever be as rich as their parents because, with the passing of each generation, their family fortunes have been redistributed among a larger number of family members. Despite these differences between these families, which stem from differences in their size and complexity as kinship groups as well as differences in the composition and distribution of their fortunes, the individual members of these families have led very similar lives. In particular, the members of each successive generation of family members have confronted similar situations and problems. To begin with, the children and many of the grandchildren of the entrepreneurs who amassed these family fortunes were sent to the most exclusive private schools. Later, they attended elite private universities, even though they did not always graduate. By and large, the members of the second and third generations of these families also married well. With only a few notable exceptions, most of them married the scions of other wealthy and socially prominent families. In short, the implicit agenda for members of the second generations of these families involved the accumulation of cultural and social capital commensurate with their economic capital. Although the same expectations existed for members of the third generation as well, they were much less urgent. Finding themselves at or very near the pinnacle of wealth and status in American society, the members of subsequent generations have been content to draw on the social and cultural capital, as well as the economic capital, amassed by their parents and grandparents. They have sometimes shunned the most exclusive prep schools and colleges and married individuals from families that were neither especially prominent nor wealthy. pps. 32-62 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credeence to Holocaust denial and nazi's need not apply. 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