Right on taxes then (now too) Today we think of Alan Greenspan and Paul Volcker as towering figures. But they are small next to Mellon, who was Treasury secretary to Warren Harding, Calvin Coolidge,and Herbert Hoover. Mellon's stature was so great that it was said of him that "three presidents served under him." Mellon was wrong about many things. But he did get one thing magnificently right: the tax policy of the 1920s. Mellon was a supply-sider before the term existed. He cut taxes a number of times, predicting accurately that his rate cuts would take the federal budget into surplus. His tax theory was based on his railroad business: When it came to taxes, he said, one should charge, "what the traffic will bear" -- and not more. He even published a tax-cut book that could have been written by Steve Forbes today: "Taxation: The People's Business." The economy rewarded Mellon's policies with strong growth and unemployment rates as low as 1.8 percent (in 1926). -- A.S.

But the octogenarian shocked the reporters. He brushed off the trial. As for the economy, he saw the brightest of prospects. "New generations are coming and new inventions," he told the newsmen before hopping on a train with his daughter Ailsa for New York. The Depression might seem eternal, but it was really merely "a bad quarter of an hour" in the glorious day of American progress.

The stereotype Mellon is well known. We think of him as a stingy Victorian caricature who cared more for abstract markets than for men. His own son, Paul Mellon, compared him to Soames Forsyte, the cold husband in John Galsworthy's "Forsyte Saga."

Sure, he built the National Gallery in Washington but that, it was said, was only a bribe to get the Roosevelt administration to halt its tax prosecutions. The Mellon we learned about was also behind the times, kept back by his retrograde views of how business worked. He was wrong, even sinister, when he said "liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate."

Finally, the Mellon in the storybooks was wrong about the Depression, Pollyanish where there was cause for great concern.

But all of these descriptions are wrong. And knowing how they are wrong helps to understand some important things about business and our economy today.

START WITH THE MYTH ABOUT MELLON'S personality. It is true he was not given to great displays of emotion -- but few in his generation were. In private, he took much care to support his children and grieved for decades after his wife, Nora, left him.

The reputation for stinginess is especially undeserved. Mellon dreamed of offering a gift to his country -- that National Gallery. Indeed, one reason he collected masterpieces like Raphael's "Madonna Alba" or Vermeer's "Girl with Red Hat" was that they would make his gift, when it came, all the more special. Everyone who knew Mellon, including Herbert Hoover, recalled that he planned his gallery on the Mall in Washington in the 1920s, while he was still Treasury secretary and Roosevelt a mere state governor.

When time came to build the gallery, no expense was spared -- Mellon at first thought it might be limestone, but then, at the advice his broker Lord Duveen, turned to costly Tennessee pink marble. Mellon died before the gallery opened, but at the opening none other than his old opponent, President Roosevelt, showed he understood the depth of Mellon's philanthropy, saying, "The giver of this building has matched the richness of his gift with the modesty of his spirit."

As for Mellon's economic policies, they too were not so horrible as history tells us. After all, the "liquidate" word didn't yet have the frightening meaning that Stalin gave it through his purge trials later in the decade. All Mellon was saying in 1929 was that we should follow a rule we often follow today: Allow the market to clear by selling. After all, in 1987, when the Dow dropped more dramatically than any single day of the Crash, investors did simply sell -- and by the end of the year, the market was back.

SECONDLY, MELLON BELIEVED IN leveraged growth. The magazine World's Work described the Mellon family formula thusly:

"Find a man who can run a business and needs capital to start or expand. Furnish the capital and take shares in the business, leaving the other man to run it except when he is in trouble. When the business has growth sufficiently to pay back the money, take the money and find another man running a business and in need of money and give it to him, on the same basis."

This is the same formula that venture capitalists like the Hillman family use today -- though often modern investors are more intrusive than the Mellon philosophy would have prescribed. Mellon was way ahead of many Wall Streeters of his day -- the sort of investors who simply traded blocks of stock shares. From Alcoa to Union Steel, Mellon's target companies proved uniquely successful.

When it came to the understanding that productivity innovations are what make economies grow, Mellon was also ahead of his crowd.

Applied research was a young concept in those days, and most universities believed in pure research: ideas for the sake of ideas. Mellon believed differently, and created the Mellon Institute for Industrial Research, or what some called a "research factory." Under the arrangement, companies from Simmons (beds) to the Pennsylvania Railroad came to the institute with cash -- and an innovation they needed at their company to function better. Scientists at the institute then contracted to develop that innovation, and delivered it by a set date. The result was new developments from skinless frankfurters to new roofing technology.

In the last year of his life, 1937, Mellon formally dedicated the new home for the Mellon Institute in Oakland. The building, today housing the Pittsburgh Supercomputing Center, was a block long, and this time, the pillars were business-like limestone. Nobel Prize winners attended and NBC aired the event in places as far away as California. Mellon noted that when he had resolved to create the institute in the 1910s, he had also resolved to improve his French. The French, he noted ruefully, was "still what it was, originally."

But the research factory had produced 1,117 research papers and 669 patents in its first quarter century. "Science makes jobs," reporters wrote in wonder -- a statement that held national attention at a time when two in 10 were unemployed.

BUT ONE OF MELLON'S GREATEST EPIPHANIES was his understanding of the Depression. Many have focused on Mellon's role in causing the Depression -- it's routinely argued, for example, that Mellon not only hurt the country with the liquidation order but also advocated bad tax and monetary policy.

Still, Mellon -- unlike the Roosevelt administration -- understood that American growth would return if you left the economy alone to right itself.

Many of the New Dealers looked to Europe -- the Fabians' Britain, Stalin's Russia or Mussolini's Italy, even -- for models of recovery. Mellon, from a family of immigrants, understood that the best paradigm for recovery lay in the United States' own tradition of enterprise.

Mellon also placed especial faith in Pennsylvania. On his birthday, The New York Times reported, he was asked if he would choose Pittsburgh again as home if he had life to live over again. "Certainly I do," he said.

MELLON DIED IN AUGUST 1937, at his daughter's on Long Island. The stock market, which had been rallying until then, promptly collapsed, prolonging the Depression. Roosevelt's Treasury secretary, Henry Morgenthau, tried to cheer markets by imitating Mellon and speaking of balanced budgets. Morgenthau even brought Mellon's old trusted aide, Parker Gilbert, along when he gave a key speech to Wall Street in the hopes of inspiring Mellonesque confidence. But the effort collapsed, in part because Morgenthau lacked Mellon's old faith in the private sector.

What of today? The huge growth spurts that the country has seen since the 1960s -- especially those of the 1980s, 1990s and this decade -- came as a shock to many observers. But they would not have surprised Andy Mellon.