John Davidson Rockefeller: The Richest Man in America

John D. was the second child born to William Avery “Bill” Rockefeller and Eliza Davison on July 8, 1839, in Richford, New York. Eventually, the family would have six children: Lucy, William Jr., Mary and twins Franklin and Frances.

Bill was first a lumberman who later listed his occupation as a traveling salesman – a “botanic physician” who sold elixirs. Bill was known for his shady schemes and his philandering. In 1838 and 1840, Bill and his mistress (housekeeper) had two daughters. Bill once bragged, “I cheat my boys every chance I get. I want to make ‘em sharp.”  John’s mother, Eliza suffered through his double life, which included bigamy. She was thrifty and told her son, “willful waste makes woeful want.”

Rockefeller at 18

Rockefeller at 18

John was an industrious boy who earned money raising turkeys, selling candy and doing jobs for neighbors.  In 1853, when John was 14, the family moved to Strongsville, a suburb of Cleveland, Ohio where he attended Cleveland’s Central High School. He then took a 10-week business course at Folsom’s Commercial College, where he studied bookkeeping.

Every year, throughout his life, John celebrated September 26, the date he entered the business world. He called it “job day.”

In 1859, Rockefeller and a partner raised $4,000 ($100,000 in 2015) and established their own produce commission firm.

In 2863, the partners built an oil refinery in “the Flats,” Cleveland’s industrial area. The refinery was owned by Andrews, Clark & Company, which included Clark, Rockefeller and Samuel Andrews (a chemist) and M.B. Clark’s two brothers. America’s first commercial oil well was drilled in Titusville, Pennsylvania in 1859.

In 1864, Rockefeller married Laura Celestia “Cettie” Spelman (1839-1915), an Ohio native whose father was a prosperous merchant, politician and abolitionist, active in the Underground Railroad. The Rockefellers had four daughters (three of whom survived to adulthood) and one son.

While John’s brother, Frank fought in the Civil War, Rockefeller hired substitute soldiers and gave money to the Union cause – a practice many wealthy Northerners used to avoid combat.

After two years in business with the Clark brothers, John bought them out at auction for $72,000 ($1M in 2015) and renamed the company Rockefeller & Andrews. In retrospect, John said, “It was the day that determined my career.”

In 1866, John’s brother, William built another refinery in Cleveland and brought John into the partnership. In 1867, Henry Flagler became a partner and the firm became Rockefeller, Andrews & Flagler. This company was the predecessor to Standard Oil Company.

Although he was vilified in the press, Rockefeller was kept moving forward. He bought competing refiners, made his operations more efficient and pressed for oil shipping discounts. He undercut his competition, made secret deals, raised investment pools and bought out rivals. In less than four months in 1872, Standard Oil took on 22 of its 26 Cleveland competitors. This was later known as “The Cleveland Conquest” and “The Cleveland Massacre.”

Even Pratt & Rogers caved to the competition and in 1874, they made a secret deal to be acquired. Charles Pratt and Henry H. Rogers became Rockefeller’s partners and Charles Millard Pratt (Charles’ son) became Secretary of Standard Oil.

Standard continued to grow. It added its own pipelines, tank cars and home delivery network. The company kept prices low to stifle competition, made its products affordable to the average household and in some cases, sold below cost. The company developed more than 300 oil-based products from tar to paint to Vaseline petroleum jelly to chewing gum. By the end of the 1870s, Standard was refining more than 90% of the oil in the US. Rockefeller was already a millionaire ($25M in 2015).

Railroad vs. Pipeline

In 1877, Standard Oil clashed with Thomas A. Scott, President of the Pennsylvania Railroad — Standard Oil’s primary transporter. Rockefeller saw pipelines as the alternative transport system for oil and launched a campaign to build and/or acquire them. Scott saw this as infringement and decided to form a subsidiary to buy and build oil refineries and pipelines.

Standard retaliated by holding back shipments and with help from other railroads, launched a price war that substantially lowered freight payments and led to labor unrest. Rockefeller prevailed and the railroad sold its oil interests to Standard. Following that battle, however, the Commonwealth of Pennsylvania, in 1879, indicted Rockefeller on charges of monopolizing the oil trade.

By the end of the Civil War, Cleveland was one of the five main refining centers in the US. Others were Pittsburgh, PA, New York and northwestern Pennsylvania, where most of the oil originated. By 1869, there were 3 times more kerosene refining capacity that was needed to supply the market; excess capacity lasted several years.

Rockefeller decided to abolish the partnership on January 10, 1870 and formed Standard Oil of Ohio, which became one of the largest shippers of oil and kerosene in the country. Railroads competed for traffic and attempted to create a cartel to control freight rates by forming the Southern Improvement Company. This company was in collusion several oil companies (including Standard Oil) outside the main oil centers. The cartel received preferential rates as a high-volume shipper, which included steep rebates of 50% for their product and the same rebate for competitors’ shipments.

https://upload.wikimedia.org/wikipedia/commons/7/73/John-D-Rockefeller-sen.jpg

Rockefeller at 36 in 1875

The announcement of increased freight charges led Independent well owners to go bonkers. They protested, boycotted, vandalized and soon found out that Standard Oil was part of the scheme. Charles Pratt & Company (a major NY refinery) led the opposition of the plan and before long, the railroads backed down. Pennsylvania revoked the cartel’s charter and non-preferential rates were restored…for the moment.

That action led to a host of new court proceedings in other states, making a national issue of Standard Oil’s business practices.

Standard Oil gradually gained almost complete control of oil refining and marketing in the US, via horizontal integration in the kerosene industry. It supplied kerosene by tank cars to local markets and tank wagons that delivered kerosene to retail customers. That way, they cut out the existing network of wholesale jobbers.

The company’s business practices were controversial. They included underselling, differential pricing and secret transportation rebates. Politicians and journalists attacked the company for its monopolistic methods and led to the antitrust movement.

According to the New York World, Standard Oil was “the most cruel, impudent, pitiless and grasping monopoly that ever fastened upon a country.” Rockefeller’s response to critics, was “In a business as large as ours…some things are likely to be done which we cannot approve. We correct them as soon as they come to our knowledge.”

It was difficult to incorporate in one state and operate in another, so Rockefeller and his associates owned dozens of separate corporations that operated in just one state. In 1882, his lawyers created the Standard Oil Trust, a corporation of corporations. Nine trustees, including Rockefeller, ran the 41 companies in the trust. The concept came under suspicion but other companies began mimicking it. Standard Oil became the richest, biggest, most feared business in the world. It was seemingly immune to the boom and bust of the business cycle and consistently made profits year after year.

The American empire included 20,000 domestic wells, 4,000 miles of pipeline, 5,000 tank cars and over 100,000 employees. At its zenith, it had 90% of the world’s refining but dropped to about 80% for the rest of the century.

Standard Oil moved its headquarters to 26 Broadway, New York City and Rockefeller became a large figure in the business community. In 1884, he purchased a residence on 54th Street at Fifth Avenue, near the mansions of other wealthy businessmen such as William Henry Vanderbilt. Despite ongoing personal threats and pleas for charity, Rockefeller took the new elevated train to his downtown office each day.

New Digs

The Sherman Act of 1890 was originally designed to control unions, but it was later used to break up the Standard Oil trust. Ohio was particularly interested in using the anti-trust laws and eventually forced Standard Oil of Ohio to separate from the rest of the company

Standard Oil moved its headquarters to 26 Broadway, New York City and Rockefeller became a large figure in the business community. In 1884, he purchased a residence on 54th Street at Fifth Avenue, near the mansions of other wealthy businessmen such as William Henry Vanderbilt. Despite ongoing personal threats and pleas for charity, Rockefeller took the new elevated train to his downtown office each day.

The Sherman Act of 1890 was originally designed to control unions, but it was later used to break up the Standard Oil trust. Ohio was particularly interested in using the anti-trust laws and eventually forced Standard Oil of Ohio to separate from the rest of the company.

In 1892, the Ohio Supreme Court dissolved the Standard Oil Trust but the businesses within the trust soon became part of Standard Oil of New Jersey, which functioned as a holding company. In 1911, after years of litigation, the U.S. Supreme Court ruled Standard Oil of New Jersey was in violation of anti-trust laws and forced it to dismantle; it was broken up into more than 30 individual companies.

Rockefeller at 46 in 1885

Rockefeller at 46 in 1885

Rockefeller survived the breakup of Standard Oil and continued to make money in mining. He also survived the 1913-14 Ludlow Massacre which began when the United Mine workers struck against coal mine operators in southern Colorado. Although Rockefeller was in the background, he was involved with the company. Once the dust settled, Rockefeller denied any responsibility and minimized the seriousness of the event. When testifying on the Ludlow Massacre (where a tent town was set on fire and 15 women and children were burned to death) Rockefeller (a director of the company), said “I would have taken no action. I would have deplored the necessity that compelled the officers of the company to resort to such measures to supplement the state forces to maintain law and order.” He later admitted that he made no attempt to bring the militiamen to justice.

When Rockefeller was in his 50s, he suffered from moderate depression and problems with his digestion. During the stressful 1890s, he developed alopecia, a condition that causes the loss of some or all body hair. By 1901 (at 62) he did not have a hair on his body and he began wearing wigs. His hair never grew back but his other health issues subsided as he worked fewer hours.

John D. and Laura

Married 51 years, John and Laura had five children. Of Laura, John said, “Her judgement was always better than mine. Without her keen advice, I would be a poor man.” There children were:

  • Elizabeth “Bessie” (1866-1906)
  • Alice (1869 – 1870)
  • Alta (1871 – 1962)
  • Edith (1872 – 1932)
  • John D. Jr. (1874 – 1960)

Rockefeller wealth has been distributed through foundations and trusts and continues to fund family philanthropic, commercial and political aspirations. Notable grandchildren of include David, a banker who for 20+ years was CEO of Chase Manhattan (now part of JPMorgan Chase); Nelson Aldrich – NY Gov. and the 41st U.S. VP; Winthrop – ARK Gov.

John D. Rockefeller was devoutly religious, a temperance advocate and an avid golfer. His goal was to reach the age of 100; however, he died at 97 on May 23, 1937, at The Casements, his winter home in Ormond Beach, Florida.

The Richest Man in History

One of Rockefeller’s great talents was to “see” where his company and the industry were headed and hire the right people to help build it.  Still, he was hands on and said his bookkeeping background trained him to keep track of even trivial details on a daily basis.

The Midstream Advantage

The economies of scale of Rockefeller’s business positioned him to earn discounts on railway freight rates, lowering Standard Oil’s transportation costs below what their competitors bid. This led to better pricing and profits for Rockefeller. (Later, these tactics came under serious scrutiny).

However, competition was fierce for shipping by rail and rebates and discounts became common practice for anyone, especially a business that could guarantee regular shipments.

Railway rebates were just the start. Standard Oil also won “drawbacks.”  Let’s say one of his competitors paid $1 per barrel to send his product from Ohio to New York. The railroad would in turn pay $.25 of that dollar to Rockefeller – not to the shipper. This was a huge financial benefit for Rockefeller. Not only were their rates below their competitors, but they made money on their competitors’ rail shipments. In short, competitors were subsidizing Rockefeller’s company.

Overproduction caused prices to plummet and the industry dropped into a depression. From 1865 to 1870, the retail price of kerosene fell more than 50%; refining capacity was 3x market needs. In the oil regions, prices dropped to $.48 per barrel – three cents less than drinking water.

To consolidate the industry and bring in more capital without diluting control, on Jan. 10, 1870, Flagler, Rockefeller and three others established the Standard Oil Company; Rockefeller held 25% of the stock. The name was selected to reflect a “standard quality” of the product.

During the refinery depression of 1872, Rockefeller was busy controlling most of Cleveland’s refineries and some in New York City. At that time, he headed the largest refinery group in the world.

The 1870s were marked by industry disputes and questionable tactics, with Standard Oil coming out on top. By 1879, Standard Oil controlled 90% of America’s refining capacity. It also controlled pipelines and dominated transportation.

Rockefeller Philanthropy

Rockefeller’s fortune peaked in 1913 at $900 million. Today that amount translates into nearly $665 billion. He was the richest man in the world.

In his lifetime, Rockefeller helped launch the field of biomedical research by funding scientific investigations that resulted in vaccines for things like meningitis and yellow fever. He revolutionized medical training in the United States and built China’s first proper medical school. He promoted the cause of public sanitation, created schools of public health at Johns Hopkins and Harvard, and helped lead major international public health efforts against hookworm, malaria, yellow fever, and other maladies.

Higher education was the first major beneficiary of Rockefeller’s more focused philanthropic efforts. A project of lifelong interest to him was the creation of a distinguished Baptist university. Rockefeller considered several options before pairing with William Rainey Harper to establish the University of Chicago. In 1890, he made his first donation of $600,000 to the school. Over the rest of his life, he donated a total of $35 million, to the University of Chicago, making it possible for the school to instantly rank among the world’s leading institutions of higher learning.

In 1901, John D.  funded the Rockefeller Medical Research Institute in New York City.  It was modeled on the Institut Pasteur in France and the Robert Koch Institute in Germany, and was this country’s first biomedical institute, on a par with its European models. The results were dramatic. Within a decade, it created a vaccine for cerebrospinal meningitis and supported the work of America’s first winner of a Nobel Prize in medicine. Today, known as Rockefeller University, it is one of the leading biomedical research centers in the world. Twenty-four Nobel Prize winners have served on its faculty.

In 1902, Rockefeller created the General Education Board, to improve rural education for both whites and blacks in the South. He wanted to modernize agricultural practices and improve public health, primarily through efforts to eradicate hookworm, which debilitated many Southerners and dragged down productivity.

The 1913 the campaign against hookworm was exported globally and led to similar efforts against malaria, scarlet fever, tuberculosis, and typhus. Rockefeller funded the International Health Commission.

In 1918, Rockefeller created the first school of public health and hygiene at Johns Hopkins University, which he then duplicated at Harvard in 1921. In all, he spent $25 million introducing public health programs at scores of universities across the globe.

By 1909, he had given away $158 million in his personal funds to various causes. In 1913, he donated 73,000 shares of Standard Oil, worth $50 million to establish the Rockefeller Foundation with a mission “to promote the well-being of mankind throughout the world.”

It has been said that John D. Rockefeller is one of the greatest philanthropists in American history; he gave away approximately $540 million before his death in 1937 at the age of 97.

Today, the Rockefeller Foundation continues to support causes around the world.


The Break-up

On May 15, 1911, The U.S. Supreme Court upheld the lower court judgment and declared Standard Oil an “unreasonable” monopoly under the Sherman Antitrust Act of 1890. The Court ruled that Standard Oil must be dissolved and broken into 33 companies.

While the description of Standard Oil as an unreasonable monopoly may have been accurate in 1880 (when it controlled 90% of the American refining capacity) by 1911, the economic and political world had changed.

Industry Domination

For decades, Standard Oil dominated the industry. It was vertically integrated and began with well drilling (upstream), transporting oil through pipelines, on railroads and in barges (midstream) to refineries where it was transformed into various products (downstream). Some critics said the company created a “monopoly” through interlocking trusts to control regions.

Demand for oil products was greater than Standard Oil could deliver. The 1901 discovery of the Spindletop oil field led to new huge oil supply that launched the oil boom in the west and south, where Standard Oil had much less control.

By 1911, Standard Oil’s 60% – 65% market share was declining while demand for oil was growing. Standard Oil dominated older oil regions but only controlled 44% of the total mid-continent production. (California produced 29% and the Gulf Coast produced 10%).

Regional players included Pure Oil in the east, Texaco and Gulf Oil on the gulf coast, Cities Service and Sun were in the midcontinent and Union Oil was in California.

 

Overseas Opportunities

Standard Oil’s efficiencies enabled it to take advantage of overseas opportunities. In the 1890s it began marketing kerosene and shipping bulk oil in tankers to China, where it was re-packaged into five gallon tins.

Standard Oil also supplied fuel, lubricating oil and paraffin to countries in Europe. The company’s European competitors included Branobel, owned by Ludvig and Alfred Nobel. In 1901, Branobel, Royal Dutch Shell and the Rothchilds were major players in Russia’s Baku oil field, which was producing more than 50% of the world’s oil.

Rockefeller built Standard Oil during the recession following the Civil War (the 1870s and 1880s). By 1900, electricity and the combustion engine created a new industrial revolution, while deflation, corruption and uneven economic growth launched the Populist Party and the Progressive movement.

Rockefeller’s motto of turning disasters into opportunities led his company to perform well in poor economic times. Following the company’s break-up, the successor companies also performed well.*

 

Upstream and Downstream Companies

Below are most of Standard Oil’s upstream and downstream companies.

      Exxon-Mobil

  • Standard of NJ (Esso)
  • Mobil (Vacuum)
  • Imperial Oil (Canada)
  • Standard of NY (Socony)
  • Standard of LA
  • Standard of Brazil
  • Anglo-American Oil
  • Humble Oil & Refining

     BP

  • Standard of OH (SOHIO)
  • Standard of IN
  • Standard of MN
  • Standard of IL
  • Standard of KS
  • Fleet-Wing

     Chevron

  • Standard of CA
  • Standard of KY
  • Standard of IA

     Others

  • Marathon (formerly Ohio Oil)
  • Atlantic
  • Conoco (Continental Oil)
  • Standard of NE
  • Prairie Oil & Gas
  • Solar Refining

Mid-stream companies include:

Transportation – Buckeye Pipe Line, Crescent Pipe Line, Cumberland Pipe Line, IN Pipe Line, Eureka Pipe, National Transit, NY Transit and Northern Pipe.

Lubricants – Galena-Signal, Swan & Finch Co.

Others – Union Tank Lines – manufacturers of rail tanker cars (Standard Oil owned 10,000 tankers in 1911), Cheesebrough Manufacturing Co. (petroleum jelly-Vaseline) and Atlas Tires (replacement parts/tires sold by service stations).

* Sources: Wikipedia, The Prize by Daniel Yergin and Oil 101 by Morgan Downey.

Ida Tarbell – Muckraker: How She Took Down Standard Oil

Born in 1857, in a log home in Hatch Hollow, Pennsylvania, Ida Minerva Tarbell grew up among the derricks of the Oil Region. Ida’s father, Frank Tarbell, manufactured wooden storage tanks for the oil industry in Pithole, PA. He later became a refiner and producer. In 1872 Frank sympathized with independent oil producers in the Oil War against the Southern Improvement Company. The 1872 Southern Improvement scheme was a hidden agreement between the railroads and refiners led by John D. Rockefeller. The scheme killed the prosperous Pennsylvania oil region and destroyed families and their livelihoods. Ida later wrote, “Out of the alarm, bitterness and confusion, I gathered from my father’s talk, a conviction to which I still hold – is that what had been undertaken was wrong.”

 

Ida Tarbell, 1857 – 1944

Ida Tarbell, 1857 – 1944

She was the only woman to graduate in 1880 from Allegheny College. Her dogged pursuit for facts and fairness was the hallmark of her writing career. Frank Tarbell’s struggles against the advancements of Standard Oil influenced Ms. Tarbell’s interest in the Standard Oil trust. Between 1902 and 1904, Tarbell wrote a 19-part series for McClure magazine about the monopolizing powers of Standard Oil. Her series drew public attention and earned her the moniker of “muckraker.”

This 1915 photo shows John D. Rockefeller (76) and John D. Jr., (41), still going strong after Tarbell let the public know how powerful Standard Oil was, which led to the breakup of the company.

This 1915 photo shows John D. Rockefeller (76) and John D. Jr., (41), still going strong after Tarbell let the public know how powerful Standard Oil was, which led to the breakup of the company.

In her series, she condemned Standard Oil’s illegal practices. The rapidly changing economy in the late 1880s and the rise of monopolistic trusts was, wrote Ida, “disturbing and confusing people.”   Tarbell was obsessed with Rockefeller and convinced that Standard Oil was a great story. She gained access to Standard Oil executive H.H. Rogers (aka Hell Hound Rogers) who was under the impression that her intention was to present the public with an unbiased narrative of the oil business.  After Rogers read her installment about how Standard’s intelligence network operated (by exerting extreme pressure on small independent retailers), he became irate and refused to see her again. Ida’s first entry was published in November 1902 and month after month, she related Standard Oil’s story of machination and manipulation…of rebates and brutal competition. She portrayed Standard Oil as single-minded and in constant war against “injured independents.”

Tarbell is best known for her two-volume work (originally articles for McClure’s) on John D. Rockefeller and his oil interests: The History of the Standard Oil Company, published 1904. The exposé resulted in federal action and eventually in the breakup of the Standard Oil Company of New Jersey under the 1911 Sherman Anti-Trust Act.

Rockefeller did not publicly respond except to describe her as “that poisonous woman” and “misguided.” Tarbell was a career woman who never married. She died in 1944 at age 86.

Andrew William Mellon: Financier, Industrialist, Servant, Philanthropist

Andrew Mellon is known as a financier, industrialist, art collector and philanthropist. While many of his peers built their careers from the ground up, Andrew was born into a wealthy family. His father, Thomas, who created the first “Mellon” bank, brought Andrew into the banking business and positioned Andrew’ for a successful life and career. Before we learn about Andrew, let us look at Andrew father, who launched the family banking business.

Thomas Mellon
Thomas Mellon wrote in his autobiography that at the age of ten, he had been struck by the “wealth and magnificence I had before no conception of” after he saw the mansion of prominent landowners Jacob Negley and Barbara Ann Negley. (Thomas later married their daughter). At fourteen, Thomas read The Autobiography of Benjamin Franklin and became inspired by Franklin’s rags-to-riches tale. He sidestepped his family’s farming business and in October 1834, he enrolled at the Western University of Pennsylvania (now the University of Pittsburgh), where he studied law and banking.

After his 1837 college graduation, Thomas built a successful legal career in Pittsburgh. In 1859, he was elected assistant judge of the Allegheny County Court of Common Pleas. For the next ten years, he served as a judge. Thomas shrewdly invested income from his legal practice by buying up large portions of downtown Pittsburgh real estate. In late 1869, he retired from the bench and opened a banking house.

T. Mellon & Sons’ Bank
On January 2, 1870, Thomas opened T. Mellon & Sons’ Bank. Above the cast iron door of the original bank, Thomas placed a nearly life-sized statue of Benjamin Franklin, his personal inspiration. The Panic of 1873, led to the failure of half of Pittsburgh’s ninety organized banks and twelve private banks, but Mellon & Sons survived the depression and was well-positioned to prosper when the economy recovered. Mellon’s shrewd investments included real estate holdings in downtown Pittsburgh, coalfields, and a $10,000 ($180k in today’s money) loan in 1871 to Henry Clay Frick (which provided coke for Andrew Carnegie’s steel mills).
On January 5, 1882, Thomas retired from day-to-day management of the bank’s affairs and handed them over to his 26-year old son, Andrew, who emerged as the sole interest in the bank. By the end of the 19th century, Mellon Bank was the largest banking institution in the country outside of New York. Thomas divested himself of most of his remaining property on February 3, 1890, leaving it in the hands of his sons. By 1902, Andrew was president of what had become the Mellon National Bank.
Thomas died on his 95th birthday, February 3, 1908. By that time, the Mellon family ranked among the wealthiest and most prominent industrialists in the United States.

Andrew Mellon
Born in Pittsburgh on March 24, 1855, Andrew Mellon was the sixth of eight children of Thomas and Sarah Mellon. The children grew up in a wealthy household but life was not all ribbons and candy. Only five of the eight children lived to become adults. Andrew attended the University of Pennsylvania but left school before he graduated.File:AWMellon.jpg

Thomas encouraged his sons to become entrepreneurs and groomed them to take over his business ventures. At just 21, his sons Tom and Jim had raised $100,000 ($202B in today’s money) operating a nursery, lumberyard and construction supply business.
At 17, Andrew was busy managing a theatre. In 1872, Thomas put Andrew in charge of a struggling lumber and coal business; it soon turned into a profitable enterprise.

Andrew joined his father’s banking firm, T. Mellon & Sons, in 1880 and two years later Thomas transferred ownership of the bank to him. In 1889, Mellon helped organize the Union Trust Company and Union Savings Bank of Pittsburgh. Andrew branched into industrial activities including oil, steel, shipbuilding, and construction.
His financial backing helped create several giant enterprises including aluminum, industrial abrasives (“carborundum”), and coke. Mellon also financed Charles Martin Hall, whose refinery grew into the Aluminum Company of America (Alcoa).
A long line of diversified interests began in 1889 with the founding of the Union Trust Company of Pittsburgh and a later subsidiary, the Union Savings Bank.

Andrew Mellon was one of the wealthiest people in the United States and the third-highest income-tax payer in the mid-1920s – behind John D. Rockefeller and Henry Ford. Andrew’s wealth peaked around 1929 -1930, during his tenure as Secretary of the U.S. Treasury Department. His net worth was estimated to range from $300 to $400 million ($4.1B to $5.5B in today’s dollars).
Marriage, Family and Divorce
In 1900, at the age of 45, Andrew married Nora Mary McMullen (1879–1973), a 20-year-old Englishwoman who was the daughter of Alexander P. McMullen, a major shareholder of the Guinness Brewing Co. They had two children, Ailsa, born in 1901 (d.1969), and Paul, born in 1907 (d. 1999)

Their marriage ended in a bitter divorce in 1912, which was granted on grounds of Nora Mellon’s desertion and her adultery with Capt. George Alfred Curphey, an English soldier, and other men. Mellon did not remarry. In 1923, his former wife married Harvey Arthur Lee, a British-born antiques dealer 14 years her junior. Two years after the Lees’ divorce in 1928, Nora Lee resumed the surname Mellon, at the request of her son, Paul.

Secretary of the U.S. Treasury and Ambassadorship
In 1921, President Warren G Harding appointed Andrew Mellon to the position of Secretary of the U.S. Treasury. Mellon served for nearly 11 years, under Harding, Coolidge and Hoover – the third longest tenure of any Secretary of the treasury.

President Harding and Secretary Mellon were on the same page when it came to taxes. Harding called for a revision of the tax system, readjustment of war taxes and the creation of a federal budget system. Mellon not only supported Harding’s programs, but also had the financial background to implement them. His goal was to reduce government debt that resulted from World War I.

The 1926 Mellon-Berenger Agreement established the amount of France’s debt to the US and a repayment schedule. The agreement reduced the amount of funds owed but it established an amount that the French would be able to pay. Mellon was also a key negotiator for Germany’s war debt. He successfully drew the debt down from $25M to $16M.

During his tenure, Mellon was not happy with the manner in which the government’s budget was maintained, rising expenses and the failure of income or revenues to keep up with increased expenses. The fact that the government was not setting aside any savings also grated on his nerves.

In 1932, Andrew Mellon resigned as Secretary of the Treasury to accept the ambassadorship to the Court of St. James in London.

Philanthropy
Andrew devoted much time and considerable sums of money to philanthropic causes. In 1913, Andrew and Robert honored their father through the creation of the Mellon Institute of Industrial Research, an organization designed to forge a partnership between American scientific research and industry. In 1937, Andrew Mellon left a combined gift of $25 million to the people of the United States, part through the donation of his extensive art collection and the remainder in cash for the construction of what became the National Gallery of Art in Washington, D.C.

In partnership with Andrew Carnegie, Andrew and Richard Mellon founded two schools of higher education that eventually merged to form Carnegie Mellon University.

Classic Carret-Common Sense from an Uncommon Man

Any man who follows solar eclipses around the world and was active on Wall Street for seventy years, should have a perspective on the market and life that is worth considering. This article presents selected quotes from Philip Carret on a variety of subjects.

Business Practices
“Let it be remembered that the accumulation of capital is hard work. It is worth burning a little midnight oil to study how best to keep it.” (1963)

 

Education
“Habits, good or bad, acquire an iron grip on human beings. All that the young need to do be assured of a good life is to surrender themselves to good habits, and flee from the bad ones. Easier said than done, of course.” (1963)

“Command of the English language more often than not often decides who succeeds among people of otherwise equal talents.” (1991)

“Failure can be a great educational experience.” (1991)

 

Evaluating Stocks

“If the management doesn’t own any stock, why should I?” (1998)

“The investor with a diversified portfolio should reexamine it at least once or twice a year, asking himself as to each item, “If I didn’t already own XYZ, would I buy it at the current market price?” If the answer is a resounding “NO!” perhaps it should be sold.” (1963)

“Most useful and most dangerous are the stock market averages, most useful in revealing the general trend of the market, most dangerous if they mislead the trader into forgetting that after all his profits depend on the movements of the individual stocks in which he deals.” (1930)

“Conceiving the speculator as manager of a business it will be seen that he also controls men, materials and money. The money is the starting point of his business, the materials are the securities which he buys and sells, the men are the directors and manager of the companies in whose securities he invests.” (1930)

“A corporation is a human creation and has many human attributes. Its life may be long or short, prosperous or the reverse. Sooner or later, in all probability it must die. The end of it existence may be sudden, the result of some hidden weakness, but in the vast majority of cases a corporation give ample evidence of financial ill-health before its dissolution or-to carry the metaphor further-a major operation occurs.” (1924)

“To consider stocks by groups rather than by individual companies is further to ignore the vital factor of management.” (1930)

“The investor, or investment advisor, who so lacks confidence in his own judgment that he won’t buy any security until it is favored by the consensus of the investment community, will buy few bargains and is unlikely to achieve results to which he could point with pride.” (1969)

“Everyone has an occasional bad day and it is utterly unreasonable to expect any company to chalk up new records quarter after quarter.” (1972)

 

Evaluating Bonds

“Income producing real estate is fundamentally the best kind of security for a loan. Real estate is the only essential to every human activity.” (1924)

“Foreign government bonds are all alike in one respect. Whether the borrowing government be Ecuador or Great Britain the lender, or bondholder, enjoys no real security except the good faith of the borrower.” (1924)

“A safe bond is merely on that is certain to be paid when due. The actual price at which it may sell at a given time, taken by itself, is no indication of safety. The price of a safe bond may fluctuate very widely.” (1924)

Ask Yourself Six Key Questions

    1. Does the company have a long record of earnings, with an unbroken, or almost unbroken, record of rising earnings for at least the past 10 years?

 

    1. Has the company’s growth been financed by borrowing money, by the issuance of additional shares of stock, or has it been financed entirely by plowing earning back into the business?

 

    1. Does the company, thanks to having prudently husbanded rather than distributed its earnings, have a debt-free or almost debt-free balance sheet? Of course, any company is always in debt short term for purchased materials or other inventory. It would hardly be practical to operate on a C.O.D. basis.

 

    1. Is the company a leader, preferably the leader, in it its field?

 

    1. How long has the company’s management been in power? How secure is its tenure?

 

    1. Finally, is there a reasonably broad market for the company’s shares?

 

Twelve Commandments of Investing

Phil Carret exercised safety-based commandments. And, the last one appears to be targeted towards “intelligent speculation.” There, he advised setting aside a proportion of available funds for long-term options on stocks in promising companies whenever available. With careful study and patience, Carret knew he could predict good outcomes. Philip Carret died on May 28, 1998, at age 101 at his home in Scarsdale, New York.

  1. Never hold fewer than 10 different securities covering five different fields of business;
  2. At least once every six months, reappraise every security held;
  3. Keep at least half the total fund in income producing securities;
  4. Consider (dividend) yield the least important factor in analyzing any stock;
  5. Be quick to take losses and reluctant to take profits;
  6. Never put more than 25% of a given fund into securities about which detailed information is not readily and regularly available;
  7. Avoid inside information as you would the plague;
  8. Seek facts diligently, advice never;
  9. Ignore mechanical formulas for value in securities;
  10. When stocks are high, money rates rising and business prosperous, at least half a given fund should be placed in short-term bonds;
  11. Borrow money sparingly and only when stocks are low, money rates low and falling and business depressed;
  12. Set aside a moderate proportion of available funds for the purchase of long-term options on stocks in promising companies whenever available.

 

 

 

Philip Carret: A Pioneer in Mutual Funds

Philip Lord Carret was born on November 29, 1896 in Lynn, Massachusetts. His parents were a 51-year-old lawyer and a 39-year-old a social worker. He was their only child. His family was well off and like others in his family he attended Harvard. The family’s earliest Harvard man was the Rev. Daniel Gookin, Class of 1669. As a 1914 freshman, he was at the new Yale Bowl for the first Harvard- Yale contest.

In 1917 Carret joined the Army Signal Corps (the predecessor to the Air Force) to fight in WW1. He was trained to fly the Sopwith Camel and was dispatched to France but saw no action because the war ended.

Once discharged and armed with a degree in Chemistry, Carret visited a grimy gas company laboratory where he noticed his tour guide wore a celluloid collar (the equivalent of today’s clip-on tie). He declared the industry “déclassé” and called it, “The absolute nadir of sartorial elegance.”

He began working for a small BostonSecurities firm at $15/week. Five months later, his salary went to $20/week. “I was insulted at the paltry amount,” he said and took off to tour America, finding work at mining camps. Later, he landed a job selling bonds in Seattle.

While in Seattle, in 1920, he met Florence Elisabeth Osgood, the granddaughter of a Civil War General and a Vermont Governor. She was a 1918 graduate of Wellesley College. They were married in 1922 and remained so for 63 years, until she passed away in 1986. They had two sons and a daughter.

Dr. Carret liked to say that Betty was 99.99 percent perfect because only God is 100 percent. He added, “In truth, I never detected a flaw that could represent a 0.01 shortfall.”

Following his marriage, he and Betty returned to Boston and he rejoined his previous firm, this time in sales. After four months, he quit and went to work at Barron’s, the new financial weekly owned by Clarence W. Barron. Carret worked as a financial reporter and wrote feature articles. He loved to tell stories about his flamboyant boss (Barron), who weighed in excess of 300 lbs. and had a flowing white beard.

In 1928, Carret scraped together $25,000 from family and friends and decided to start his own mutual fund named Fidelity Investment Trust. It was later renamed Pioneer Fund.

He fund began strongly with blue chip stocks like Maytag preferred and Firestone Tire and Rubber. Even after the 1929 crash, his fund was still ahead by 11 percent. However, by the beginning of 1932, an original investment of $1,000 on January 1, 1929 would have shrunk to $470.

Following the market bottom, later in 1932, the fund bounced back to being up 37 percent. Today, the original $1,000 investment would be worth more than $2 million, making Pioneer (according to Mutual Funds Magazine) by far the most profitable of the old-time funds.

Carret selected stocks for himself, for Pioneer and later for Carret & Company, which he launched in 1963 (the same year he sold control of Pioneer’s management company). Twenty years later, he stepped down as chairman of Pioneer.

Warren Buffett said that Carret had “the best long term investment record of anyone I know.” He is most famous for the long successful track record he achieved investing in common stocks and for being one of Warren Buffett’s role models.
Carret’s nuts-and-bolts style of investing became known as “value investing.” He wanted to make sure his wealthy clients’ investments would continue to grow.

One of Phil and Betty’s hobbies was following solar eclipses. Mr. Carret and his wife saw their first one in Westerly, RI in 1925. Since then, they traveled to every corner of the world, from the Amazon to Antarctica to Siberia and Borneo and saw 20 eclipses. He says that they are all pretty much the same but insists that to him, no sight compares with the inevitable march of the moon across the sun.

During his lifetime, Carret made many donations to Harvard, Wellesley and several charities.

 

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