The Scapegoat

A new book recounts how Roosevelt pinned the Depression on a banker-turned-Treasury secretary to hasten the age of big government.

W hy am I here again?

That is the question even our jolly Treasury secretary, Scott Bessent, must ask himself some days. It was also the question one of Bessent’s predecessors, Andrew Mellon, surely asked himself, especially toward the end of his service, in the early 1930s.

It all started so well. When a new president, Warren Harding, tapped the Pittsburgh magnate Mellon for Treasury in 1921, there was no question about the qualifications of the nominee. Mellon had long since proven himself a maestro of both financial arbitrage and investment. But Mellon was already posing the question. Why should he, already 65, budge from his Tudor mansion on Woodland Road? To avoid conflicts of interest in the Treasury post, he would have to extract himself from his tangled private empire, resigning boards and selling stocks in a separation so clean that his companies would run, as he put it, “as if I had died.” Outside of government, “Old Andy,” as they called him, was a free agent. Inside, he would serve president, people, and, of course, a political party.

Yet like Bessent, Mellon wanted to serve. And service in areas that played to his comparative advantages — financial expertise, portfolio management, turnarounds — especially appealed to Mellon. Besides, like Bessent as well, Mellon relished a challenge.

And what a challenge this new portfolio represented. At the moment Harding and Mellon negotiated Mellon’s appointment, the economy lay stuck in recession. The top income tax rate stood at 73 percent, hardly an incentive to build a fortune. Worse yet, capital gains, key to investment, were taxed at the same absurd rates as ordinary income. Business owners and managers responded by mounting what the papers termed a “capital strike.” In 1920 and 1921, more than one in ten workers — in some cities, close to two in ten — were without a job. The federal government lumbered under the unprecedented debt from World War I.

Ensconcing himself behind the fiscal wheel like a racing daredevil, Mellon drove the economy from its standstill to roaring prosperity in just a few years. Along the way, he managed to reduce that federal debt by a third.

In between laps, as it were, the Secretary stopped to open the fiscal hood and lay out for the public in meticulous detail the mechanical changes that were making the acceleration possible: a 1921 law locking a separate capital gains rate at a bearable 12.5 percent; successive income tax cuts in 1921, 1924, and 1926; and the creation of a proto-DOGE called the Bureau of the Budget.

To professionalize tax collection, Mellon pushed through Congress the creation of a tax court, the Board of Tax Appeals, on the idea that taxpayers deserved judges who knew the code. Somewhere along this frantic ride, Mellon also found time to publish a book, the single most elegant tax primer in modern American history, the 1924 Taxation: The People’s Business.

Before long, the press was referring to Mellon as the best Treasury secretary since Alexander Hamilton. Calvin Coolidge, when he became president in 1923, insisted on keeping Mellon in the driver’s seat, as did Hoover–at first. At the height of Mellon-mania in 1929, people spoke of Mellon not as a race car driver but as a national leader. It was even said of Mellon that “three presidents served under him.”

Soon enough, the joy ride ended. Toward the end of his first and only term, Hoover eased Mellon out by naming him ambassador to the Court of St. James’s. When reporters inquired of Mellon whether he was happy with the plum post, Mellon responded: “It’s not a marriage ceremony. It’s a divorce proceeding.”

After November 1932, the entire Republican Party was out. Instead of enjoying retirement and his first grandchild, the former Treasury secretary found himself spending the middle 1930s in the same undignified position as Al Capone, defending himself in court against charges of tax evasion.

Mellon died in 1937. Worse yet, so did the memory of his achievements. Treasury geeks and one later president — Ronald Reagan — studied Mellon’s tax data. But the public knew, and knows, very little about him. Today, when the word “Mellon” is uttered, it is usually as half the name of a bank, a university, or a charity: “BNY Mellon,” “Carnegie-Mellon,” “The Mellon Foundation.” And today, when English and Social Studies instructors teach the 1920s, they assign a book that contradicts the evidence of his economy and ignores his vision: F. Scott’s Fitzgerald’s The Great Gatsby.

Most historians attribute the precipitous decline of the Mellon name to the Great Depression of the 1930s. At 20 percent unemployment, the level in 1933, plenty of Americans were hungry for some kind of revenge. Nations in depression scapegoat rich men.

But the truth is that it often falls to individuals to select which scapegoat. In Mellon’s case, that individual was Hoover’s successor, Franklin Roosevelt. To be sure, others before FDR had assailed Mellon: In Mellon’s final dreary time at Treasury, the JD Vance of the era, Representative Wright Patman of Texas, had even launched an amateurish attempt to impeach Mellon. (Patman prefigured Vance in his style, a kind of random populism.) Roosevelt’s attack, however, was professional enough, and long enough, to make Mellon’s cancellation stick.

The forthright acknowledgment of that fact is the gift of Greg Steinmetz’s new book, The President and the Oligarch: Roosevelt, Mellon and the Triumph of Big Government. “Almost from Day One of his presidency,” as Steinmetz notes, “Franklin Roosevelt was out to get Andrew Mellon.” Why Mellon and not Henry Ford, or John D. Rockefeller’s heirs?

Because Mellon was the premier financial statesman of the Roaring 1920s.

To bring down Mellon was to bring down his policies and those of his favorite of his three presidents, Calvin Coolidge. It was to set the stage for a government that was the opposite of Mellon’s, a “new economic order,” large and intrusive. Though there was scant evidence Mellon caused the Great Depression, “post Mellon, ergo propter Mellon” was likely too good a slogan to bypass. If Roosevelt succeeded, he would cancel not only a “malefactor of great wealth” but also an entire era. Therefore, Roosevelt mounted what Steinmetz terms a “ruthless campaign.”

Roosevelt relished lawfare and often chose tax court as his battlefield. “My father may have been the originator of the concept of using the IRS as a form of political retribution,” as his son Elliott Roosevelt commented much later (Elliott meant the “Bureau of Internal Revenue,” the IRS forerunner, but never mind). The president sent others to jail over taxes — the publisher Moses Annenberg is an example — but concentrated most of his firepower on Mellon. The irony of hoisting Mellon by his own tax petard must have seemed especially delicious.

Never mind that the initial case against Mellon, alleging tax fraud in business, was, as Steinmetz points out, flimsy. After all, most successful financiers like Mellon don’t cheat on taxes. The risk of prosecution makes cheating not worth their time. Roosevelt spent several years egging on his own Treasury secretary, that classic yes-man Henry Morgenthau, in his pursuit of Mellon. Morgenthau needed no convincing. “I consider that Mr. Mellon isn’t on trial but democracy and the privileged rich,” he said, a rich line since Morgenthau himself came from wealth.

The lawyer whom the Justice Department, in turn, sicced on Mellon was Robert Jackson. In the early 1930s, Jackson was not yet the dignified Supreme Court justice and Nuremberg prosecutor we know from history books. He was a feisty litigator from the boonies — rural western New York— and sported a pinky ring. The Mellon prosecution was Jackson’s chance to make his name in Washington: “Thank God I have that kind of boss,” Jackson told Morgenthau.

Yet the attempt to uncover business fraud in the Mellon empire foundered: Mellon won his first case; the Bureau of Internal Revenue even determined he was due a refund. Undaunted, his administration assailants next dragged Mellon before the very court he had created, the Board of Tax Appeals. This time Mellon’s tax deductions for his art purchases were the focus. Mellon claimed the deductions were warranted. He purchased his Rembrandts and Vermeers as part of a collection for a national museum he would give to the American people. Jackson claimed the charity was a sham.

This effort backfired too. Mellon produced a trust charter for a charity committed to building a national gallery dated December 1930, a time when Roosevelt was still governor of New York. The trust’s date provided strong evidence of the legality of subsequent deductions. Further weakening Jackson’s chances of prevailing was the public’s reaction. Even during the Depression, plenty of citizens liked the idea of Washington getting its own Louvre. Frank Hogan, Mellon’s lawyer, played on that sentiment.

“Every time we bring out a bad point, Hogan brings out a picture,” Jackson complained to reporters. “I am literally smothered by Madonnas.” Soon it was Mellon’s turn to toy. During one of his numerous days in court, he allowed that he might site the gallery somewhere other than Washington. The threat was obvious: “if,” as Steinmetz puts it, “Roosevelt wasn’t careful, the Rembrandts and van Eycks could wind up, like Alcoa and Gulf, in the Keystone State.” The tax judges ruled for Mellon, and the gallery rose on the National Mall. Where Mellon could have used more economic limestone, he opted for pink Tennessee marble, in seven shades. The order was of such quantity that it was said that the National Gallery order stimulated the economy of Tennessee.

Yet the damage to Mellon’s reputation proved real. Ever after, historians would treat the National Gallery and its pictures as Mellon’s attempt to bribe Roosevelt into leaving him alone. As for Mellon’s greatest legacy, his tax rates, they had long since become history themselves. In a panic over revenues, Hoover pushed through high rates, worsening the early years of the Depression. Roosevelt raised rates some more. The Depression abided. Indeed, in 1937, the year of Mellon’s death, joblessness stood at 15 percent. Inadvertently, Hoover and Roosevelt had provided fresh evidence for the validity of Mellon’s philosophy. Low taxes correlated to good times; high taxes to the Depression.

But of course no one said so at the time.

With this account of FDR’s moves and Mellon’s fall, Steinmetz displays a talent rare among economic historians: the ability to capture characters and move the argument along with evidence from the period. Steinmetz doesn’t preach that the Smoot–Hawley Tariff of 1931 was wrong, for example, though it was. He describes the rage of banker Thomas Lamont, who would have known about the tariff, and Lamont’s comment that the tariff was “asinine.”

There are a few areas to quibble over in The President and the Oligarch. For whatever reason, Steinmetz swipes at those who inspired Mellon, the Yale philosopher William Graham Sumner and the backer without whom Mellon would have aborted, Calvin Coolidge. The most damaging evidence against Coolidge that Steinmetz marshals is a bullish statement about the stock market that Coolidge is said to have uttered in 1929. Coolidge, Steinmetz reports, “waved the bulls on.” The primary source for the contention is likely Hoover, who made such a claim in one of his numerous memoirs about the period. The contention is likely incorrect. Research by Hoover biographer George Nash suggests that Hoover misdated the Coolidge comment, claiming it was made more than a year later than Coolidge actually spoke positively about the market. That misdating matters because there’s a difference between commenting contentedly on a market at 200 — the Dow around the end of 1927, when Coolidge spoke — and inciting a market already at 300, the 1929 level.

From time to time, Steinmetz also impugns Mellon’s motives. Mellon did not protest the 1930 Smoot–Hawley tariff. The author suggests that Mellon held his silence out of “self-interest”: absent tariffs, European aluminum “could undercut Alcoa,” a Mellon company.  Mellon supported tariffs in general. But the likelier cause of Mellon’s silence was Mellon’s respect for president and party tradition, not the hope of individual gain. Mellon was too big for that.

The flaws that matter are Steinmetz’s definitions and assumptions. He casts Mellon as an “oligarch” in the book’s title. The term suggests a business figure who has built his fortune through transactions with government. That definition suits plenty of politicians in today’s techno-industrial complex. But it does not suit Mellon, who, before joining the Treasury, operated mainly in the private sector.

Steinmetz also suggests that Mellon’s wealth got him the Treasury post. The money surely helped. But Harding considered several millionaires for Treasury, including the wealthy banker Charles Dawes. Mellon likely won the post for his bond-market mastery and vindicated Harding’s choice with stunning management of both European and American debt. Mellon companies were such an important part of the economy that the federal government was bound to conduct business with some of them. But as Steinmetz himself shows, cronyism on the scale of Russia, or even Washington, today, was not the rule in the 1920s.

Steinmetz also classifies Mellon as a libertarian, a choice that seems equally off: a libertarian would have bridled against Prohibition, the law at the time. Mellon enforced it. A better label for Mellon might be “pragmatic classical liberal.” Or “classical liberal” in all areas, except the tariff.

Steinmetz’s assumptions regarding the 1930s are likewise open to question. He suggests that capitalism was genuinely in danger in America, which is not necessarily true. Though wild radicals crossed the national stage in the 1930s — Huey Long of Louisiana — they never gained purchase on national politics. As the Dutch author Odette Keun discovered when she traveled among union men in the depths of the Depression: “Broadly speaking, labor in America is conservative. It is one of the most flabbergasting discoveries I have made.” The premise of great danger to democracy permits Steinmetz to posit that Roosevelt must be forgiven for his transgressions against Mellon and others: Roosevelt was “saving capitalism.” Big government was necessary.

What this excellent book does do, however, is invite the counterfactual. What if someone other than Roosevelt had served as president in the 1930s? Might the Depression have been shorter?  What if Mellon had stayed behind the wheel? The moment has come for a short biography of Mellon. That much, at least, we owe Old Andy.