The Reconstruction Finance Corporation (RFC) was created by Congress in January 1932 at the request of President Herbert C. Hoover and continued through the presidency of Franklin D. Roosevelt. Under the leadership of Jesse H. Jones, it played important roles in New Deal efforts to stimulate the economy during the Great Depression and in the economic mobilization for World War II.
The RFC came about because of the crisis of the banking system in the early 1930s. Initially resisting bankers’ requests for federal assistance, President Hoover prevailed upon them late in 1931 to establish the National Credit Corporation, with a fund of $500 million to lend to banks needing cash to sustain their operations. But Hoover also agreed to provide federal help if the NCC proved inadequate; and when it did, Congress in January 1932 created the Reconstruction Finance Corporation and authorized it to lend up to $2 billion to commercial banks, savings banks, credit unions, and other financial institutions. RFC loans went especially to major banks and institutions, but with little apparent impact upon the collapsing banking system, and the HoovER presidency came under fire for the RFC’s ineffectiveness as well as for its apparent favoritism to large banks.
In the summer of 1932, the RFC took on new responsibilities in public works and relief. As the depression worsened, Congress increasingly supported spending on public works and relief to spur the economy and alleviate distress. Hoover rebuffed or vetoed most such efforts, but in July 1932 reluctantly agreed to the compromise Relief and Reconstruction Act, which authorized the RFC to lend states up to $300 million for relief and up to $1.5 billion for self-liquidating public works projects (for example, toll roads and bridges). To qualify for federal loans, states had to certify that they had reached their financial limits, and the combination of this “pauper’s oath” and the reluctance of the Hoover administration to spend on relief and public works meant that little of the money was expended.
President Franklin D. Roosevelt thus inherited an agency with significant potential but little accomplishment. Roosevelt energized and redirected the RFC. The Emergency Banking Act of 1933 allowed the RFC to buy preferred commercial bank stock, thus increasing the working capital of banks instead of lending them money and increasing their indebtedness. FDR also named Texas banker Jesse Jones, who served as an RFC director under Hoover, to head the agency. Believing that the RFC had favored conservative eastern banks over smaller banks in other regions, Jones wanted to make the RFC a far more venturesome and expansive agency.
While other New Deal agencies took over government relief and public works functions, the RFC became a major source of money for government agencies and private businesses and banks. It became, in effect, the largest bank and the largest investor in the nation, and by 1945 had distributed more than $35 billion in loans, investments, and other expenditures. Among its many operations, the RFC helped to underwrite such key agencies as the Federal Emergency Relief Administration and the Rural Electrification Administration, directed the Commodity Credit Corporation and the Export-Import Bank and financed the various federal mortgage agencies, including the Home Owners Loan Corporation, the Farm Credit Administration, and the Federal Housing Administration. The RFC also made business loans in an effort to stimulate the economy, and by 1940 had expended some $8 billion in business and banking loans. Although the New Deal failed to bring full economic recovery, the RFC under Roosevelt and Jones became a powerful and innovative agency.
The RFC then played an important role in economic mobilization during World War II. The Defense Plant Corporation, a subsidiary of the RFC, spent more than $9 billion in constructing more than 2,000 factories, while the Defense Supply Corporation spent a similar amount in acquiring materials necessary for the war effort. As ubiquitous during the war as in the 1930s, the RFC also undertook such diverse activities as overseeing the synthetic rubber industry, financing defense housing, and buying up materials needed by the Axis nations. RFC overseas efforts led to a bitter dispute between Jones, who had become secretary of commerce in 1940 in addition to his duties as RFC chairman, and Vice President Henry A. Wallace, which ultimately led to Jones’s resignation from government in early 1945. The agency itself continued into the postwar era, though without the significance or impact of the Roos-evelt-Jones era of 1933-45.
Further reading: James S. Olson, Saving Capitalism: The Reconstruction Finance Corporation and the New Deal, 1933-1940 (Princeton, N. J.: Princeton University Press, 1988); Bascom N. Timmons, Jesse H. Jones: The Man and the Statesman (New York: Henry Holt, 1956).
World History
