President Herbert Hoover signed the Reconstruction Finance Corporation Act on January 22, 1932, creating the Reconstruction Finance Corporation (RFC) and providing for “emergency financing facilities [loans] for financial institutions, to aid in financing agriculture, commerce, and industry, and for other purposes” [1]. The legislation was in response to the Great Depression and mass unemployment, as Hoover declared after signing the bill:
“[The law] brings into being a powerful organization… Its purpose is to stop deflation in agriculture and industry and thus to increase employment by the restoration of men to their normal jobs. It is not created for the aid of big banks or big industries… amply able to take care of themselves. It is created for the smaller banks and financial institutions… to give renewed support to business, industry, and agriculture…” [2].
Several months later, Congress and Hoover expanded the lending powers of the RFC with the Emergency Relief and Construction Act of 1932. This law allowed the RFC to lend money directly to the states and territories to “create employment” and expedite “a public-works program” [3]. These laws make it clear that President Hoover had become aware of the need for some degree of government intervention. Unfortunately, it was not enough. After some revival, the economy sank even further into depression. When Franklin D. Roosevelt entered the White House in March 1933, “the banking system was near total collapse and unemployment had reached 25%” [4].
Through several legislative acts, President Roosevelt and Congress greatly expanded the powers of the RFC and developed it into an essential component of the New Deal. Considered as “undoubtedly… the most complex of all Federal lending agencies” [5], it provided funds for the New Deal’s Federal Emergency Relief Administration (FERA), Home Owners’ Loan Corporation (HOLC), Rural Electrification Administration (REA), Resettlement Administration (RA), Farm Credit Administration (FCA), and other alphabet soup programs. Roosevelt was also successful in “getting the RFC to make direct business loans [i.e., not channeled through private financial institutions] as a means of stimulating industrial expansion” [6].
Between 1932 and 1939, the RFC authorized $13.2 billion in loans to banks, agriculture, railroads, industry, public school authorities, state governments, federal agencies, and other entities [7]. Among other things, these loans helped fund the construction of bridges, low-cost housing, sewer systems, highways, college buildings, and other public works. From 1940 to 1945, the RFC played an integral role in the financing of America’s national defense and war efforts [8].
By the end of its operation in 1957, the RFC had loaned out around $50 billion for an astonishing array of national needs. These loans were almost entirely paid back with interest [9]. The RFC was slowly dissolved by several government reorganization acts in the 1950s and its functions were farmed out to other agencies, for example, the Small Business Administration [10].
The RFC’s most important leader was Texan Jesse H. Jones (1874-1956), appointed co-director by Hoover in 1932 and then given the chairmanship by FDR in 1933. Jones led the RFC through all the New Deal and war years before leaving in 1945 for a life devoted to philanthropy [11].
Mostly forgotten today, the RFC was a vital part of the New Deal and of American history more broadly, assisting the nation “through periods of recovery, preparedness, war, reconversion, economic expansion, another war and, finally, stability and prosperity” [12].
Sources
(1) “Reconstruction Finance Corporation Act,” Pub. L. No. 72-2, 47 Stat. 5 (1932). For the full text of the act, see https://legisworks.org/sal/47/stats/STATUTE-47-Pg5.pdf (accessed May 22, 2019). (2) Secretary of the Treasury, Final Report on the Reconstruction Finance Corporation, Washington, DC: U.S. Government Printing Office, 1959, p. 1. (3) “Emergency Relief and Construction Act of 1932,” Pub. L. No. 72-302, 47 Stat. 509 (1932). For the full text, see https://legisworks.org/congress/72/publaw-302.pdf (accessed May 22, 2019). (4) “The Great Depression,” Herbert Hoover Presidential Library and Museum, National Archives and Records Administration (accessed May 22, 2019). (5) See note 2, p. v; also see Appendix A, “RFC Legislation,” pp. 187-191 for the complete legislative history of the RFC, 1932-1957. (6) James S. Olson (ed.), Historical Dictionary of the New Deal: From Inauguration to Preparation for War, Westport, CT: Greenwood Press, 1985, pp. 411-412; also see note 2, pp. 65-67. (7) Reconstruction Finance Corporation, Reconstruction Finance Corporation Seven-Year Report, To The President And The Congress Of The United States, February 2, 1932 to February 2, 1939, pp. 1-2. (8) See note 2, pp. 123-147. (9) See note 6, p. 275. (10) See note 2, p. 40. (11) See note 6, pp. 274-275; also “Houston Endowment,” the still-active charitable foundation of Jesse and Mary Jones, (accessed May 22, 2019). (12) See note 2, p. v.
« Back to Glossary Index