Big Business in America Term Paper

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Andrew Mellon was an important figure in American history. His policies and strategies helped to shape the American economy and the tax policies that exist. The purpose of this paper is to discuss Andrew Mellon the man and his history as the Secretary of Treasury in the 1920's. The discussion will seek to dispel the assertion that Mellon only aided the wealthy and that his policies helped trigger the Great Depression.

Andrew Mellon

Andrew Mellon's family was composed of entrepreneurs who had accumulated wealth through the companies that they owned. According to the United States department of the Treasury, Andrew Mellon showed an acumen for finance when he formed a lumber business when he was only 17 (History of the Treasury). Mellon joined his father's banking firm at the age of 19 and became the owner of that bank at the age of 27 (History of the Treasury). In addition, Mellon aided in organizing the Union Trust Company and Union Savings Bank of Pittsburgh. As a young adult, Mellon also built personal wealth in the steel, oil, shipbuilding, and construction industries (History of the Treasury). Throughout World War I Mellon was also involved in the National War Council of the YMCA the American Red Cross, The National Research council of Washington and the Executive Committee of the Pennsylvania State Council of National Defense (History of the Treasury).

By the time Andrew Mellon became Secretary of State many of the corporations that the family had interests in had amassed for the family Billions of dollars. Most of this fortune came from the banking, coal and steal industries. In fact

'In but four corporations and four banks, the majority of whose income flowed into the family's pockets, dividends soared from a mere $6,950,000 in 1920 to $24,686,000 eight years later ... Assets of four of the family's firms rose -- between the inaugurations of Harding and Hoover -- from $428,000,000 to $952,000,000. These figures did not include Standard Steel Car and McClintic-Marshall whose financial reports were made known only to their few stockholders, and Pittsburgh Coal, Pittsburgh Plate Glass, Crucible Steel, in which the family held large blocks of stocks and bonds. Money on deposit in the Mellons' four largest banks advanced in that period from $229,000,000 to $351,000,000. The Pittsburgh bankers indisputably were a billionaire family (O'Connor). "

According to a book entitled Mellon's Millions: The Biography of a Fortune; the Life and Times of Andrew W. Mellon, during his thirties Andrew Mellon wealth increased. This was also during the time when he began to devote time to public affairs. Andrew Mellon became Secretary of State on March 5, 1921 (O'Connor). O'Connor explains that Mellon's wealth made him immune to the scrutiny that would befall most nominees for Secretary of State under President Harding (O'Connor). The author contends that Mellon entered the office with ease and began his service to the country.

According to the United States Department of the Treasury Mellon served as Secretary of State from 1921 to 1932. He served under Harding, Coolidge, and Hoover respectively (History of the Treasury).

The book asserts that many business leaders praised him for lending his financial expertise to the nation. However, some questioned his motivation to public service. The author explains, "one tabulation of the corporations in which his family was interested showed an increase in assets from $1,690,000,000 in 1920 to $6,091,000,000 in 1928. Critics said that he had profited from the information available to a Secretary of the Treasury concerning the financial status of his competitors (O'Connor)."

Taxation Policy and Government Spending

As secretary of State, Mellon made many changes to the economic policies of the country (Moley). One of the most controversial was his taxation policy. Many believed that his taxation policy favored the wealthy (Wueschner et al.). However, Mellon believed that if the tax system was too burdensome it would deter people from being productive. Mellon believed that "Any man of energy and initiative in this country can get what he wants out of life. But when that initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends. . . ." (O'Connor)

Mellon's policy of taxation became known as the Mellon plan. The United States Treasury also reports that in 1923 the plan was presented to the Chairman of the Ways and Means Committee. The Treasury asserts that the plan was a balanced program, which proposed lowering taxes out of surplus revenues. Eventually this idea became the Revenue Act of 1924. Annually, the Mellon Plan reduced the taxpayers' bill by $400 million over what would have been collected if the 1921 tax rates had remained active (History of the treasury).

According to an article Mellon's tax plan involved large cuts in income tax rates for the wealthy. In addition, the plan proposed other tax reductions fro rich Americans. Mellon asserted that the tax cuts were necessary because high income tax rates would impede upon the initiative of wealthy individuals (Notes from the Editors). According to the United States Department of the Treasury, Mellon also believed that tax cuts were necessary for reducing the cost of living (History of the Treasury). In addition, many in the country supported the plan. According to various authors "Long before the details of the Mellon Plan [for tax reduction] were given to Congress the Congress was overwhelmed with letters and telegrams from every section of this country indorsing the Mellon Plan in all its particulars . . . And imploring us to vote against any other suggestion as to how the Federal taxes might be reduced (Smith; Graves and King)."

However, those that opposed Mellon's tax cuts, namely Senator La Follette, believed that he was allowing the wealthy to escape their fair share of taxation (Notes from the Editors). Mellon warned that such allegations were tantamount to declaring class warfare. Mellon asserted, "the man who seeks to perpetuate prejudice and class hatred ... is doing America an ill service. In attempting to promote or defeat legislation by arraying one class of taxpayers against another, he shows a complete misconception of the principles of equality on which the country was founded (Notes from the Editors)." Mellon also believed that the Senator was not educated enough to speak on such financial matters. Mellon argued that "such men had never had the responsibility of handling a sector of the nation's economic life, were ignorant of the principles of sound finance, believed that in some fashion tax laws should be made into a bludgeon to beat down that American initiative which had created, among others, Aluminum Company of America and Gulf Oil (O'Connor)."

Although there was some initial opposition to the plan, Congress passed the Mellon Plan in February of 1926 (Notes from the Editors). The Mellon Plan released billions per year to industry leaders and into Wall Street (Notes from the Editors). Mellon's plan accomplished this by reducing the individual tax rate from 77% in 1921 to 25% in 1928 (Notes from the Editors). In addition, the Mellon Plan allowed for a large cut in the estate tax, which was reduced from 40% to 20% (Notes from the Editors). The article also explains that the gift tax and the excess-profits tax were also abolished. Although Mellon's tax cuts are often blamed for creating the stock market crash that came three years after the Mellon plan and led to the Great Depression, many concede that the stock market crash occurred most as a result of World War I expenses.

Mellon economic policies also changed the way in which American government utilized taxes and generated revenue (History of the Treasury). When Andrew Mellon became secretary of the treasury, the government's budget for the previous year was $6.5 billion (History of the Treasury). In addition, the United States government had many fixed expenses and other debts maturing within the next 2-1/2 years which equaled $7.5 billion (History of the Treasury). By the end of Mellon's third year as secretary, the budget was decreased to $3.5 billion. In addition, most of the fixed expenses that totaled $7.5 billion had been completely paid off or exchanged for maturities that were more advantageous. Additionally, public debt was decreased by $2.8 billion. The U.S. treasury asserts that Mellon further "reduced the public debt (largely inherited from World War I obligations) from almost $26 billion in 1921 to about $16 billion in 1930 (History of the Treasury)." This resulted in "less Government interest charges paid out and, therefore, a saving each year of Government expenses (History of the Treasury)."

Discussion and Conclusion

The purpose of this paper was to discuss Andrew Mellon the man and his history as the Secretary of Treasury in the 1920's. The investigation suggests that Andrew Mellon showed acumen for financial matters at an early age. He used his abilities to create several successful…[continue]

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