Who Is Andrew Mellon, and Why Is He Important?

by Burt on February 28, 2012

One hundred years ago, he was the third wealthiest man in U.S. history. But that’s not why he’s important.

Eighty years ago, he stepped down after eleven years as Secretary of Treasury under three consecutive presidents. But that’s not why he’s important.

I’m preparing to tape a TV documentary on Andrew Mellon, and I need to explain his importance clearly and crisply. Andrew Mellon was a spectacular “explorer.” What he discovered was that cutting tax rates, especially on rich people, often sparked economic growth AND increased revenue into the national treasury as well. That discovery, which he made in the 1920s, is so profound and subtle that few politicians and reporters even know it exists today.

Let’s set the stage. In 1921, the U.S. was in recession and recovering from World War I. The national debt had skyrocketed and unemployment was 12%. President Warren Harding entered the White House that year and courted Andrew Mellon to be his financial “Mr. Fix It.” The top tax rate was 73%, but, given the high national debt, few wanted to risk cutting tax rates and then watch federal revenues decline with more war debts trickling in. Andrew Mellon, from his great investments in aluminum and corner gas stations, knew that capital fled from taxes and ran toward freedom. Therefore, he wanted to slash top tax rates to 25%. He even made this shocking statement: “It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the government, and that more revenue may often be obtained by lower rates.”

In other words, Mellon said this:
If we cut tax rates, entrepreneurs will take their capital and invest once again in American industry and create the jobs and wealth needed to spark a U.S. recovery. The greater investment means that the government will receive more revenue from lower rates. Or, as one wag said, 73% of zero is zero; 25% of something is something.

What happened? Mellon was right. Presidents Harding and Coolidge cut top income tax rates to 25% (and they cut all other tax rates as well). Under this new freedom, American factories churned out radios, refrigerators, washing machines, and telephones in abundance. Investors could keep the bulk of the profits they made. U.S. unemployment plummeted from 12 to 2% in just two years, and Americans led the world in industrial production during the 1920s. And Andrew Mellon, for his discovery, received the nickname of “the greatest secretary of treasury since Alexander Hamilton.”

Today, in the face of stagnant industry and high taxes, Americans should sound the battle cry, “Bring back Andrew Mellon, or if not, at least bring back his ideas.”

Burt’s recent lecture at the Citadel in Charleston, SC is available at
http://www.youtube.com/watch?v=rPq7Yhco6qY.

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