Reconstruction Finance Corporation

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The Reconstruction Finance Corporation (RFC) was an independent agency of the United States government chartered during the administration of Herbert Hoover in 1932. It was modeled after the War Finance Corporation of World War I. The agency gave $2 billion in aid to state and local governments and made loans to banks, railroads, farm mortgage associations, and other businesses. The loans were nearly all repaid. It was continued by the New Deal and played a major role in handling the Great Depression in the United States and setting up the relief programs that were taken over by the New Deal in 1933. (Sprinkel 1952)

It dispersed $1.5 billion in 1932, $1.8 billion in 1933, and $1.8 billion in 1934. Then it dropped to about $350 million a year. On the eve of World War II it greatly expanded to build munitions factories, dispersing $1.8 billion in 1941. The total from 1932 through 1941 was $9.465 billion.(Sprinkel 1952)

Hoover appointed Atlee Pomerene of Ohio to head the agency in July 1932. Hoover's reasons for his surprising reorganization of the RFC included: the broken health and resignations of M. Eugene Myers, Paul Bestor, and Charles Gates Dawes; the failure of banks to perform their duties to their clientele or to aid American industry; the country's general lack of confidence in the current board; and Hoover's inability to find any other man who had the ability and was both nationally respected and available. (Shriver 1982)

The RFC was bogged down in bureaucracy and failed to disperse many of its funds. It failed to reverse the growth of mass unemployment before 1933. Butkiewicz (1995) shows that the RFC initially succeeded in reducing bank failures, but the publication of the names of the recipients of loans beginning in August 1932 (at the demand of Congress) significantly reduced the effectiveness of its loans to banks because it appeared that political considerations had motivated certain loans. Partisan politics thwarted the RFC's efforts, though in 1932 monetary conditions improved because the RFC slowed the decline in the money supply.

Starting 1933 Franklin Delano Roosevelt kept the agency, increased the funding, streamlined the bureaucracy, and used it to help restore business prosperity, especially in banking and railroads. He appointed Texas banker Jesse Jones as head, and Jones turned RFC into an empire with loans made in every state. (Olson 1988)

The RFC also had a division that gave the states loans for emergency relief needs. In a case study of Mississippi, Vogt (1985) examined two areas of RFC funding: aid to banking, which helped many Mississippi banks survive the economic crisis, and work relief, which Roosevelt used to pump money into the state's relief program by extending loans to businesses and local government projects. Although charges of political influence and racial discrimination were levied against RFC activities, the agency made positive contributions and established a federal agency in local communities which provided a reservoir of experienced personnel to implement expanding New Deal programs.

[edit] World War II

President Roosevelt merged the RFC and the FDIC [Federal Deposit Insurance Corporation], which was one of the landmarks of the New Deal. Oscar Cox, a prime author of the Lend-Lease Act, general counsel of the Foreign Economic Administration joined as well. Lauchlin Currie, formerly of the Federal Reserve Board staff, was the deputy administrator to Crowley.

The RFC established eight new corporations, and purchased an existing corporation. The eight RFC wartime subsidiaries are Metals Reserve Company, Rubber Reserve Company, Defense Plant Corporation, Defense Supplies Corporation, War Damage Corporation, U.S. Commercial Company, Rubber Development Corporation, Petroleum Reserve Corporation. These corporations were involved in funding the development of synthetic rubber, construction and operation of a tin smelter, and establishment of abaca (Manila hemp) plantations in Central America. Both natural rubber and abaca (used to produce rope products) were produced primarily in south Asia, which came under Japanese control. Thus, these programs encouraged the development of alternative sources of supply of these essential materials. Synthetic rubber, which was not produced in the United States prior to the war, quickly became the primary source of rubber in the post-war years.

From 1941 through 1945, the RFC authorized over $2 billion of loans and investments each year, with a peak of over $6 billion authorized in 1943. The magnitude of RFC lending had increased substantially during the war. Most lending to wartime subsidiaries ended in 1945, and all such lending ended in 1948.

The Petroleum Reserves Corporation was transferred to the Office of Economic Warfare, which was consolidated into the Foreign Economic Administration, which was transferred to the Reconstruction Finance Corporation and changed to the War Assets Corporation. The War Assets Corporation was dissolved as soon as practicable after March 25, 1946.

[edit] Bibliography

Barber, William J. From New Era to New Deal: Herbert Hoover, the Economists, and American Economic Policy, 1921-1933. (1985).
Butkiewicz, James L. "The Impact of a Lender of Last Resort During the Great Depression: the Case of the Reconstruction Finance Corporation." Explorations in Economic History 1995 32(2): 197-216. Issn: 0014-4983
Jones, Jesse H. Fifty billion dollars;: My thirteen years with the RFC, 1932-1945 (1951) detailed memoir by longtime chairman
Paul A. C. Koistinen. Arsenal of World War II: The Political Economy of American Warfare, 1940-1945 (2004)
Mason, Joseph R. "The Political Economy of Reconstruction Finance Corporation Assistance During the Great Depression." Explorations in Economic History 2003 40(2): 101-121. Issn: 0014-4983 Fulltext in Ingenta
Olson, James S. Herbert Hoover and the Reconstruction Finance Corporation, 1931-1933 (1977).
Olson, James S. Saving Capitalism: The Reconstruction Finance Corporation and the New Deal, 1933-1940. Princeton U. Press, 1988. 246 pp.
Shriver, Phillip R. "A Hoover Vignette," Ohio History 1982 91: 74-82. ISSN: 0030-0934
Beryl Wayne Sprinkel. "Economic Consequences of the Operations of the Reconstruction Finance Corporation." The Journal of Business of the University of Chicago Vol. 25, No. 4 (Oct., 1952), pp. 211-224 online at JSTOR
Vogt, Daniel C. "Hoover's RFC in Action: Mississippi, Bank Loans, and Work Relief, 1932-1933." Journal of Mississippi History 1985 47(1): 35-53. Issn: 0022-2771
Gerald Taylor White, Billions for Defense: Government Financing by the Defense Plant Corporation During World War II (1980)

video: Strange, Eric, prod. "Brother, Can You Spare a Billion? The Story of Jesse H. Jones." (1999) Color and black and white. 57 min. Distributed by Houston Public Television, Houston, Tex.