Saving Capitalism: The Reconstruction Finance Corporation and the New Deal, 1933-1940

by James Stuart Olson

For two generations historians have debated the significance of the New Deal, arguing about what it tried and tried not to do, whether it was radical or reactionary, and what its origins were. They have emphasized the National Recovery Administration, Agricultural Adjustment Administration, Tennessee Valley Authority, or the various social and labor legislation to illustrate an assortment of arguments about the real New Deal. Here James Olson contends that the little-studied Reconstruction Finance Corporation was the major New Deal agency, even though it was the product of the Hoover Administration. Pouring more than ten billion dollars into private businesses during the 1930s in a strenuous effort to save capitalism, the RFC was the largest, most powerful, and most influential of all New Deal agencies, proving that the main thrust of the New Deal was state capitalism--the use of the federal government to shore up private property and the status quo. As national and international money markets collapsed in 1930, Hoover created an RFC with a structure similar to that of his War Finance Corporation. The agency was given two billion dollars to make low-interest loans to commercial banks, savings banks, other financial institutions, and railroads. With modifications, it survived the ultimate collapse of the economy in 1933 and went on to become the central part of the New Deal's effort to preserve fundamental American institutions.



Originally published in 1988.

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264 pages, Hardcover

First published February 1, 1988

Reviews

[Frank Stein · Rating 4 out of 5]

This is the second book in Olson's series about the Reconstruction Finance Corporation (RFC), which takes the RFC through its heydey in the early New Deal and into the beginning of its operations in World War II. Once again Olson proves his point that the RFC was infinitely more central to recovery from the Depression than most historians credit. Almost every acronymomic agency or program created by Roosevelt had its genesis or its funding in the RFC, from the FERA, PWA, WPA, CWA, FDIC, HOLC, FHA, to Rural Electrification and the Export-Import Bank. Although many of these agencies and programs died with Roosevelt, many have continued to survive and expand up to today. As Olson points out, the RFC both symbolized and supported the rise of a permanent "state capitalism" in the postwar period.

Jesse Jones, the Houston publisher and Democratic mastermind who ran the organization throughout the Depression, is the central figure in this story. He lobbied to continually increase the authority of his Corporation in Congress, and provided special loans and handouts to members who voted for more authorizations. Within a year of his ascension to power he was said to have a line of congressmen outside his door every morning asking for favors. Beyond these obvious goodies, the RFC garnered congressional approbation because its loans could be held off the books of the federal budget and continuously expanded without seeming to expand the deficit. Like Fannie Mae in later years (which itself arose from the RFC's Mortgage Loan Division and received its starting capital from RFC), it became a never-ending political honeypot.

Yet, as Olson shows, some political efforts to direct the agency to particular loans proved costly. The railroads were in a state of permanent decay and hundreds of millions the RFC directed towards them, mainly in an attempt to shore up life insurance company investments, went up in smoke. The loans also possibly delayed the consolidation in the railroad industry that commissioners at the ICC thought the companies needed to survive in the long-term. More tragically, the RFC expanded from bank financing to direct business loans, and proved woefully inadequate at the job. For years Jesse Jones attacked bankers for not loaning their excess reserves to businesses fast enough, railing that they had to "do their part for recovery," but when he was given the opportunity in the RFC renewal act of 1934 to direct his own loans at business, he found few credit-worthy customers for his millions. Despite his jawboning, he came to take the position of bankers that the problem of the Depression was not one of credit supply, but of business demand.

This book shows that the operations of the RFC during the Depression were much more extensive than are typically discussed in histories of the era, and the policies Olson describes provide many valuable lessons for the federal government's contemporary attempts to poke and prod the credit market back to recovery.

[Zachary · Rating 4 out of 5]

Fascinating history of the New Deal. Cemented how similar RFC was in its mission of directing finance to productive economic centers in industrial policies across East Asia (albeit less ambitious).
TBH I only read like 75% of this, skipped a few parts, but I'm counting it. Goodreads has no rules!