Politics

Andrew Mellon's Conflicts, and Trump's

The president's family business entanglements might not turn out to be a big deal ... as long as his popularity doesn't sink any lower.

Cautionary tale.

Photographer: Mark Makela/Getty Images

On Jan. 6, 1932, a second-term congressman from East Texas stood up on the floor of the House of Representatives and made a shocking announcement.

“On my own responsibility,” Wright Patman said, “I impeach Andrew William Mellon, secretary of the Treasury of the United States, for high crimes and misdemeanors.”

The 1789 law that created the Treasury Department had decreed that the secretary was not allowed to:

directly or indirectly be concerned or interested in carrying on the business of trade or commerce, or be owner in whole or in part of any sea-vessel.

According to the evidence presented by Patman -- paraphrased here by Tarleton State University history professor Janet Schmelzer -- Mellon had during his 11 years at Treasury not only “retained ownership of substantial voting stock in over 300 corporations engaged in worldwide trade and commerce” but also “acquired a fleet of sixty-seven ships, all but forty-nine registered under foreign flags.”

There was much more, including charges that Mellon had continued to own bank stock despite such ownership being banned for members of the Federal Reserve Board (in those days the Treasury secretary was ex officio Fed chairman) and successfully pushed for the use of aluminum (manufactured almost exclusively by Alcoa, 1  which Mellon and his brother, Richard, controlled) in the construction of government buildings.

Patman hadn’t made this stuff up. Yes, a few of the particulars were wrong: In a subsequent hearing, Mellon said he had sold all his bank stocks to his brother. But that didn’t really help -- it was clear that Andrew Mellon (the brains in the family operation; his brother seems to have been more the emotional-intelligence guy) had continued to steer one of the world’s largest business empires while running the Treasury Department.

To head off impeachment proceedings, President Herbert Hoover sent Mellon to London as ambassador to the U.K. There, Mellon successfully lobbied his hosts to go easier on foreign companies looking to drill for oil in British-controlled Kuwait. And yes, one of those companies was the Mellon-controlled Gulf Oil. As Princeton University historian David Cannadine put it in his excellent 2006 biography of Mellon, 2  from which most of the historical details in this column are taken:

Mellon had always believed that the ultimate purpose of diplomacy, no less than that of government, was to secure a world in which American business could thrive, especially (if not exclusively) the businesses he owned.

This seems topical! President Donald Trump is nowhere near the business titan that Mellon was, and it’s unclear at this point whether he has any philosophy of the ultimate purpose of government. But his administration is loaded with former corporate executives and Wall Streeters, and his family business rife with opportunities to be helped out by presidential actions. So Mellon’s experience is relevant.

One key difference between the secretary of the Treasury and the president is that the latter isn’t subject to restrictions on business activity that are nearly as specific as the 1789 Treasury law -- there’s just the Constitution’s ban on receiving “emoluments” from foreign states, and even there it’s not certain that it applies to the president. Since the 1978 Ethics in Government Act, which sets out clear procedures for cabinet members to follow, the contrast between the rules for the president and those for his appointees has been even greater.

But as Mellon’s experience shows, even open flouting of the rules doesn’t seem to matter if public opinion and a huge majority in Congress are behind you. Once you’ve fallen out of favor, though, even behavior that's formally within the rules can lead to lots of trouble.

Republican Warren Harding, who appointed Mellon to the Treasury post in 1921, had been elected the previous November by landslide margins of 404-127 in the Electoral College and 16 million to 9 million in the popular vote. Republicans held a 302-131 majority in the House and a 59-37 edge in the Senate, and the Senate confirmed Harding’s entire cabinet on Inauguration Day. The 65-year-old Mellon’s only concessions to conflict-of-interest concerns were to hand his bank shares over to his brother and sell his interest in the Overholt distillery (Prohibition had gone into effect the year before).

After some tough economic times during Harding’s brief presidency (he died in 1923), Mellon and Harding’s successor Calvin Coolidge got to preside over one of the great booms in American history. Mellon cut taxes and balanced the budget, and people started calling him the greatest Treasury secretary since Alexander Hamilton. In 1924, a Federal Trade Commission investigation of anti-competitive activities by Alcoa revealed that Mellon continued to control the company, and a few Democratic senators called for his resignation or impeachment. They remained a tiny minority, though. Mellon was seen as the guarantor of American prosperity, and when Hoover was elected in 1928, there was no question that he would keep on Mellon at Treasury.

Then, of course, everything began to go wrong with the economy. The Democrats took control of the House in 1931, and Republican dissidents began criticizing the administration as well. As the recession deepened, Mellon was the most obvious target for their ire. The transfer to London saved him from an impeachment trial, but when he returned to the U.S. in 1933, he found that while his family’s businesses were doing remarkably well, he had become a political pariah. Democrat Franklin Delano Roosevelt was now president, and the Treasury and Justice departments began investigating Mellon on suspicions of massive tax fraud.

Those suspicions weren’t borne out; Mellon’s conception of the purpose of government did not extend to giving himself special tax breaks, and he was fully exonerated by the Board of Tax Appeals in December 1937. But by then he’d been dead for three months. The fact that Mellon spent a big chunk of his fortune in his later years buying masterpieces for the National Gallery of Art he intended to build in Washington (and that his son, Paul, saw through to completion) has done much for his posthumous reputation. But the last few years of the guy’s life were pretty miserable.

So what does this mean for President Trump? His party does have majorities in both House and Senate, but it’s nowhere near as dominant as it was in the early 1920s, and the president himself is a divisive figure with the lowest approval rating of any new president (45 percent) since Gallup started keeping track in 1953. If he turns things around and becomes popular and widely admired, his family business entanglements may not cause him much grief. If his popularity sinks and a few congressional Republicans turn against him -- or the Democrats take control of the House or Senate in 2018 -- they’ll likely be a weight that just keeps dragging him down.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. Alcoa Inc. split last year into Alcoa Corp., which mines bauxite and makes aluminum out of it, and Arconic Inc., which manufactures aluminum products.

  2. Disclosure/confession: I haven’t read the whole book, just the conflict-of-interesty parts. But they’re so good that I’m willing to recommend the whole thing (and hope to read all 778 pages of it one of these days).

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net

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