Mellon, Andrew

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Mellon, Andrew

(1855-1937)
Gulf Oil Company

Overview

Andrew William Mellon built an enormous fortune as an industrial financier in the late 1800s and early 1900s. He was instrumental in backing many companies that went on to become giants, including the Aluminum Company of America (ALCOA) and the Gulf Oil Corporation. When President Warren G. Harding named Mellon his Secretary of the Treasury in 1921, it seemed the culmination of a brilliant career. However, Mellon would later be one of the men blamed for the Wall Street Crash of 1929. He later served as the U.S. ambassador to the United Kingdom and helped establish the National Gallery of Art in Washington, D.C.

Personal Life

Mellon was born on March 24, 1855, one of eight children, to Judge Thomas and Jane (Negley) Mellon in Pittsburgh, Pennsylvania. His father was born into a poor family of Irish immigrants, but established a fortune as a pioneer in the banking and steel industries of early Pittsburgh. Young Mellon was educated at home by a private tutor, and later attended public schools in Pittsburgh. He was given a grounding in business at an early age and apparently received the skills of sound judgment and remarkable executive talents from his father.

Though he would become highly influential, Mellon was far from a charismatic figure. He was short and small, with deep-set, cold blue eyes. He spoke softly and with a stammer, so that people had difficulty hearing what he said. Mellon was said to have no real friends, not even his longtime associate Henry Clay Frick, whom he invariably addressed as "Mr. Frick." In spite of his being shy and withdrawn, Mellon—who let his brother Richard act as his "front man" in business—married and fathered two children, Paul and Ailsa. He died in Southampton, New York, on a visit to his daughter, on August 26, 1937.

Career Details

Mellon had an education centered almost exclusively on business. In 1873, he left Western University (now the University of Pittsburgh) in Pittsburgh shortly before graduation. He soon established a successful lumber company and became widely known throughout the Pittsburgh community for his abilities in business.

Through the efforts of his father, Mellon got a job in the real estate business established by his father, T. Mellon and Sons. The family's fortune had become even greater after they gained large amounts of property due to other people's foreclosures in the financial panic of 1873. In 1886, Mellon's father retired from the business world. After Mellon returned from a trip to Europe—the traditional "Grand Tour" taken by wealthy young men at that time—with an associate named Henry Clay Frick, his father put him and his younger brother, Richard Beatty Mellon, in charge of the family's business interests. These ranged from real estate and coal mines to banking.

Mellon was not a passive caretaker—he actively sought out to expand business opportunities. In October of 1889, he and his brother organized the Union Trust Company of Pittsburgh as an affiliate of their banking firm (later known as the Mellon National Bank). Union Trust Company soon had the business of most of the leading Pittsburgh companies. After the Mellons established Union Savings Bank, and these three banking institutions, all under Mellon control, became the largest and most influential financial institutions in the nation.

Mellon helped fund the Pittsburgh Reduction Company known as Aluminum Company of America (ALCOA), after its owners came to him for a loan in 1889. He later gained total control of AlCOA, and through it held a virtual monopoly on aluminum. This was the beginning of a fortune that would ultimately eclipse that of his father by a large factor.

In 1899, Mellon and his associate Frick started Union Steel, an enormous company which competed with the industry leader at that time, United States Steel. Union Steel later merged with United States Steel and became the largest producer of steel in the world.

Two years after founding Union Steel, Mellon financed a Texas oil company which came to him for help. Its drilling rigs had struck so much oil that they could not retrieve it fast enough with the equipment they had. As in the case of ALCOA, Mellon gained control of the company, which soon took the name of Gulf Oil. He bought up 40 percent of its stock. By 1906, its founder had been edged out, and Mellon appointed his nephew to direct Gulf Oil. Gulf Oil later diversifed into the Gulf Refining Company, also controlled by Mellon, in order to process the oil that Gulf Oil extracted.

In 1914 Mellon acquired the last of the crown jewels of his portfolio with the acquisition of Koppers Gas and Coke Company. This purchase gave him dozens of utility companies all along the east coast of the United States.

In addition to these very high profile companies, Mellon also established many other companies. He was also involved with The Workingmen's Savings and Trust Company, the Bessemer Trust Company, the Duquesne Trust Company, the Braddock National Bank, the Monongahela Trust Company, the Wilkinsburg Bank, the East Pennsylvania Savings and Trust Company, the Pennsylvania Railroad, the Ligonier Valley Railroad, and Union Fidelity Title Insurance Company, as well as several other banks in and around Pittsburgh. He also came to own the Pittsburgh Coal Company, which was the largest company of its kind in the world. Mellon also established the town of Donora, Pennsylvania, which became the site of several major steel mills.

Mellon was involved in behind-the-scenes politics since his early days as a businessman. He moved into mainstream politics in 1920, when he paid off a $1.5 million deficit incurred by the Republican National Committee. In a move that would surely have ended the career of a politician in the post-Watergate era, President-elect Warren G. Harding rewarded Mellon by appointing him to his cabinet as secretary of the treasury. Mellon was hardly known outside of Pittsburgh and financial circles, even though he owned and operated businesses in every state of the country and almost every country in the world. Only after this appointment did he become a leading national figure. He resigned his myriad directorships in his many companies and moved to Washington D.C., intent on occupying himself with only the nation's business.

Mellon was a political conservative, and his policies while in office reflected his beliefs. He opposed progressive taxation—a policy of taxing wealthier individuals at a higher rate than others of lesser financial means. He was also against high taxes on business and industry. Mellon urged Congress to stop its practice of burdening wealthier individuals and corporations with high taxes. His programs followed the view that the nation's greatest interest was in the success of its businesses and that government should allow corporations to retain a maximum of profit for reinvestment and expansion. Under Mellon, the nation's debt fell from $24 billion in 1920 to $16 billion in 1931. Mellon also oversaw the repayment of loans made to the nation's European allies during World War I.

Mellon felt that wealth created and retained at the top of the capitalist system would filter down to the lower levels. This early version of the "trickle down" theory of economics made popular by Ronald Reagan in the 1980s was widely popular in Mellon's time. While Mellon was in office, the burden of taxation paid by those earning above-average incomes fell drastically. Taxation on those earning less than average fell as well, though not to the same degree. During the 1920s, the United States saw the greatest rise in business it had ever seen up to that time. Mellon's critics felt that his policies were specifically designed to help himself and his companies, and detractors claimed that his tax policy unequally distributed income and provided relief for millionaires.

While serving as the secretary of the treasury, Mellon also served as the chairman of the Federal Reserve Board, the Farm Loan Board, and the U.S. section of the Inter-American High Commission. He also served as the general director of the United States Railroad Administration and was a member of the board of Reconstruction Finance Corporation.

After years of great success, first in the Harding administration and then in those of Presidents Calvin Coolidge and Herbert Hoover, Mellon suddenly fell from grace after the stock market crash of 1929. He interpreted the world economy's crash as a natural phenomenon and favored a deflation in the nations currency to thwart the economy's fall. Mellon did not favor public works projects, even though many called for them as a way to keep Americans working after the crash. From his office, Mellon promoted a policy of savings, and stressed frugality in the nation's spending habits. In early 1930, Mellon stated that: "I see nothing in the present situation that is either menacing or warrants pessimism."

Mellon's political career never recovered from the tailspin it went into after 1929. In the face of mounting criticism, he stepped down as secretary on February 5, 1932 and was persuaded by the president to take a post as the U.S. ambassador to Great Britain. Mellon fulfilled his duties in London excellently, but when Hoover lost the election to the Democrat Franklin D. Roosevelt and finished his presidency in March of 1933, Mellon resigned his post as ambassador and returned to the United States.

Mellon returned to private life and set about, along with his brother, Richard, to establish the Mellon Institute of Industrial Research. This non-profit institute is devoted to research in physical science and technology as an aid to business. It is currently operated by the University of Pittsburgh and has contributed many developments to U.S. industry.

Chronology: Andrew Mellon

1855: Born.

1886: Took control of T. Mellon and Sons.

1889: Established the Union Trust Company of Pittsburgh.

1906: Gained full control of Gulf Oil Company.

1914: Purchased Koppers Gas and Coke Company.

1921: Appointed as U.S. Secretary of the Treasury.

1923: Introduced the Mellon Plan.

1932: Became U.S. ambassador to the United Kingdom.

1933: Founded Mellon Institute of Industrial Research.

1937: Donated art collection to the federal government.

1937: Died.

In 1937, Mellon donated his large and distinguished art collection to the federal government. He endowed the National Gallery of Art in Washington, D.C. with funds to construct a gallery for these works. But even with these philanthropic deeds, for the last years of his life, Mellon was under attack as a leading capitalist by the liberals of Roosevelt's new administration.

Social and Economic Impact

Mellon built his success largely by being able to play both sides against the middle. Thus between 1898 and 1902, he financed and brokered a number of corporate mergers, and when many of these mergers failed in the financial panic of 1903, he was able to foreclose on them and gain control of the companies.

Mellon's shrewd investment strategies made him an extremely wealthy man. Aside from the many companies he owned, he had interests in other giant corporations of his time, such as Bethlehem Steel, Westinghouse, and Pullman. In 1920, his family's wealth was valued at $1.69 billion. This would be a large sum of money at any time, but especially then, when a man making $10,000 a year was considered a high earner.

In 1923, Secretary of the Treasury Mellon introduced the Mellon Plan, which reduced taxes on the wealthiest citizens. It was not necessarily a bad idea, since these were the people who owned the businesses that gave others jobs. A new tax plan in February 1926 (not Mellon's creation) set taxes for the wealthy even lower. He was called "the greatest Secretary of the Treasury since Alexander Hamilton." (Hamilton was a powerful figure in the administrations of Presidents John Adams and Thomas Jefferson.) By 1927, people even considered Mellon a viable candidate for the presidency.

But when the stock market crashed in October of 1929, Mellon and his boss, President Herbert Hoover, were blamed. Whether this was justified is debatable, but it is certain that Mellon's public image went into a downturn. He was exposed to even more negative publicity when it was revealed that the secretary of the treasury himself had taken questionable actions in filing his tax returns.

With his cut-throat business dealings and retiring personality, Mellon gained few close friends. As secretary of the treasury, his tax policy won him first esteem and then revulsion. But his charitable activities, including the National Gallery of Art in Washington, D.C. and the Mellon Institute of Industrial Research in Pittsburgh, are still seen today as important contributions to America's cultural and business life.