Financial History 143 Fall 2022 - Page 21

Library of Congress Prints and Photographs Division
Clerks of the Reconstruction Finance Corporation and Commodity Credit Corporation check and tabulate loans and interest on loans , 1937 .
corporations to accomplish a range of unprecedented special purposes . Among them were acquiring natural resources , stockpiling strategic minerals and metals and building production facilities , as well as constructing and operating oil refineries and pipelines outside the United States . As it had done during the depression years , the RFC used its financial capacity to function as a “ back door ” to the US Treasury and augment the hundreds of millions of dollars Congress was appropriating to directly fund the expansion of the country ’ s military forces .
By the end of hostilities in mid-1945 , the RFC had distributed more than $ 23.2 billion in loans , investments and advances . It took until mid-1947 before the agency was able to shut down most of the government subsidiary corporations it had been operating . By that time , it became clear that it had also recovered more than $ 20 billion from dividends , lease payments , loan reimbursements , profits and the sale of unneeded manufacturing facilities and surplus war property . Congress then eliminated the RFC ’ s ability to conduct its unusual wartime activities . But it allowed the agency to continue lending money to a variety of businesses , investing in public projects and making catastrophe loans . The following year , legislators expanded the RFC ’ s ability to stimulate the housing sector by financing the construction of prefabricated houses and providing a secondary market for mortgages . Also at that time , congressional investigators began a series of hearings examining the lending practices and operations of the RFC , focusing specifically on the nature of political influence , personal favoritism and mismanagement . The net result was a consensus that the RFC did indeed fulfill an important economic need by making capital easily available to the nation ’ s small businesses , but that it had become too big , expansive and tinged with corruption . Congressional leaders believed the country would benefit from a reorganization that would disband the frequently expanded and emboldened “ temporary ” agency and transfer its responsibilities to a number of permanent standalone agencies . So , in July 1953 , Congress abolished the RFC ; it created the Small Business Administration ( SBA ) to continue its small business lending activities and assigned other functions to the Commodity Credit Corporation , the Federal National Mortgage Association ( FNMA ) and the Export-Import Bank .
Historians acknowledge the success of the RFC in saving the banking industry in the early 1930s and supplementing the government ’ s national defense initiatives in the early 1940s . But they continue to debate the rationale of establishing an independent government agency to accomplish the goals of 1 ) allocating credit throughout the economy by filling a gap not served by financial institutions and 2 ) facilitating an administration ’ s social spending efforts . The RFC was created during an economic emergency and empowered to operate outside traditional federal budgetary constraints . Creating a similar agency to help rehabilitate the nation ’ s infrastructure may or may not be on our current legislators ’ list of priorities .
Michael A . Martorelli is a Director Emeritus at Fairmount Partners and a frequent contributor to Financial History . He earned his MA in History from American Military University .
Sources
Cho , Hyo Won . The Evolution of the R . F . C . Ph . D . Dissertation . Ohio State University . 1953 .
Freeman , Richard . “ How Roosevelt ’ s RFC Revived Economic Growth , 1933 – 1945 .” Executive Intelligence Review . Vol . 33 . No . 11 . 2006 .
Olson , James Stuart . Saving Capitalism : The Reconstruction Finance Corporation and the New Deal , 1933 – 1940 . Princeton , NJ : Princeton University Press . 1988 .
Sprinkel , Beryl Wayne . “ Economic Consequences of the Operations of the Reconstruction Finance Corporation .” The Journal of Business . Vol . XXV , No . 4 . 1952 .
Todd , Walker F . “ History and Rationales for the Reconstruction Finance Corporation .” Federal Reserve Bank of Cleveland , Economic Review . Vol . 28 , No . 4 . 1992 .
US Department of the Treasury . Final Report on the Reconstruction Finance Corporation . Washington , DC : Government Printing Office . 1959 .
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