Mellon-ization, Austerianism, and Grexit

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate…

It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
-Andrew W. Mellon

This quote of the advice that Secretary of Treasury Andrew Mellon allegedly gave to President Herbert Hoover is famous, though mostly in the form that omits the second part. But it is exactly there that the ethos of Austerianism shines through. Which I would summarize as “high living is not for the undeserving” where “undeserving” is defined basically as anyone not in Andrew Mellon’s economic class. A class in which Mellon was an elite among the elites, take this from his Wiki entry Andrew Mellon.

Areas where Mellon’s backing created giant enterprises included aluminum, industrial abrasives (“carborundum”), and coke. Mellon financed Charles Martin Hall, whose refinery grew into the Aluminum Company of America (Alcoa). He became the partner of Edward Goodrich Acheson in manufacturing silicon carbide, a revolutionary abrasive, in the Carborundum Company. He created an entire industry through his help to Heinrich Koppers, inventor of coke ovens which transformed industrial waste into usable products such as coal-gas, coal-tar, and sulfur. He also became an early investor in the New York Shipbuilding Corporation.[2]

Mellon was one of the wealthiest people in the United States, the third-highest income-tax payer in the mid-1920s, behind John D. Rockefeller and Henry Ford.[1] While he served as Secretary of the U.S. Treasury Department his wealth peaked at around $300–$400 million in 1929–1930.

Mellon was a member of the South Fork Fishing and Hunting Club (whose earthen dam failed in May, 1889, causing the Johnstown Flood), and he belonged to the Duquesne Club in Pittsburgh. Along with his closest friends Henry Clay Frick and Philander Knox (also South Fork Fishing and Hunting Club members), Mellon served as a director of the Pittsburgh National Bank of Commerce.[3]

Which gets to my point. Clearly Mellon’s (apocryphal) advice was not to suggest that HE be liquidated, that HIS way of life would have the ‘rottenness’ purged, that HE would have to work a harder more moral life. No instead the liquidation was destined for those who never should have been in the market in the first place, the “less competent people”, thus allowing all the real assets underlying the investment bubbles to be picked up cheaply by “the enterprising people”. For example the members of the South Fork Fishing and Hunting Club and the Duquesne (town) Club.

My assertion is that this same underlying ethos of the “undeserving” (mostly but not just the poor) against the hard-working “deserving” (including but not exclusive to industrial and financial magnates) operated long before Mellon and long after him and fuels Austerianism today. Creditors are hardworking and deserving of their returns, debtors are not. And this includes not just individuals but whole countries. Like Greece. So in a pinch the right answer is to “liquidate farmers, liquidate stocks” while leaving those with deep capital to pick up the pieces.

A final note before turning this over. Under this ethos the phrase ‘shared sacrifice’ has a specialized meaning. Because the proposed sacrifices are very often in the form of pension ‘reform’ (i.e. cuts) and an increase in tax on consumption, which is to say a direct attack on the ‘high living’ of the ‘undeserving’. What you don’t see in general, and certainly not in the case of Greece, is any acceptance by creditors that ‘sacrifice’ require any significant tax on capital or haircut on financial investment. Business investment maybe, that is the ‘liquidate stocks … liquidate real estate’ piece of Mellon’s prescription, and driving small business to ruin is just an unavoidable part of ‘sacrifice’. But at no point was Mellon, or today the IMF or the ECB suggesting that any real burden should fall on hard working deserving bankers.