According to the LR blog, this anecdote comes from a 1931 entry in Mencken’s diary:
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William Faulkner, the Southern author who has been visiting New York for six or eight weeks past, has gone home at last, leaving a powerful odor of alcohol behind him. Judging from stories I hear on all sides, he was drunk every night he was here.
Among those who entertained him was Alfred Knopf. The other night Knopf was invited to a dinner somewhere else, with Faulkner as the guest of honor. Knopf took a couple of copies of Faulkner’s books and asked him to autograph them. Faulkner replied about as follows: “I am sorry, but I don’t think I can do it…I believe that it is a mistake for an author to make his signature too common. However inasmuch as it is you, I think I might very well autograph one of the books.” This extraordinary boorishness to a man who had been hospitable to him struck the whole assemblage dumb. Knopf himself made no reply, and did not mention the books again.
Faulkner’s publisher, Harrison Smith, wrote to me a week ago saying that Faulkner would stop off in Baltimore on his way South. Fortunately, he did not do so. The town is full of tales about his incessant boozing. he had a roaring time while he was here and will go back to Prohibition Mississippi with enough alcohol in his veins to last him a year.