See J. H. Jones, Fifty Billion Dollars (1951).
U.S. government agency established (1932) to provide loans to railroads, banks, and businesses. The RFC was an attempt by Pres. Herbert Hoover to counter the early effects of the Great Depression by rescuing institutions from default. It was widely used by Pres. Franklin Roosevelt in the New Deal and to finance defense plants in World War II. After the war, the RFC's powers and functions were gradually transferred to other agencies.
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It disbursed $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, disbursing $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 disburse much 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.
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.