During the October anniversaries of the stock market crashes that announced the Great Depression of 1929 and the Great Recession of 2008, we can look at history for a way out of our current economic woes. Houston's own Jesse Jones left a blueprint for us to follow. During the 1930s and 1940s, Jones - the most powerful person in the nation next to President Franklin D. Roosevelt - showed that government can help people and make money at the same time when he used the Reconstruction Finance Corporation to salvage the nation's economy during the Great Depression and then to militarize it in time to fight and win World War II.
After fruitlessly relying for two years on business, charity and public confidence to reverse the economy's downward spiral, President Herbert Hoover created the RFC in 1932 to make loans to banks, insurance companies and railroads as his last-ditch effort to save the drowning economy, and appointed Jones, a Democrat, to the bipartisan board. Jones, an avowed capitalist and Houston's pre-eminent developer during the first half of the 20th century, thought Hoover's RFC was "too timid and slow." With great relevance for today, he once lamented, "A few billion dollars boldly but judiciously lent and invested by such a government agency as the RFC in 1931 and 1932 would have prevented the failure of thousands of banks, and averted the complete breakdown in business, agriculture and industry."
After his first inauguration, President Roosevelt made Jones RFC chairman. Jones immediately began buying preferred stock in banks, intent on recapitalizing them so they could lend again. He explained, "Without this new government capital, there would have been few banks left.… Putting a solid foundation under our banking system was the first step in rebuilding our economy." The banks eventually repurchased all of their stock, no institution was permanently nationalized, and the federal government notably made money on the rescue. Just as Jones and Roosevelt had hoped and planned, democracy and capitalism survived. The RFC under Jones's leadership provides a model for policies that work and don't cost money in the long run.
For instance, the RFC's Electric Home and Farm Authority (EHFA) helped cash-strapped farmers buy appliances once the federal government brought electricity to their area. The plan was simple: the RFC reimbursed merchants after a consumer made a purchase, then the local utility company included a small monthly charge for the appliance, including a little interest, in each customer's bill, and forwarded the proceeds to the RFC. The benefits were multiple: The program increased demand for durable goods, boosted sales for Main Street merchants, helped hundreds of thousands of citizens plug into the modern age and increased employment. Upon the agency's liquidation in 1943, all of the EHFA's original capital was returned to the U.S. Treasury with, according to Jones, "a tidy profit." A similar effort today, instead of promoting consumption, could finance solar panels, wind turbines, localized generators and storage systems to encourage conservation, spur development of an emerging industry and reduce reliance on foreign resources. Unfortunately, ideology and misinformation about the role of government prevent such an implementation. One contemporary writer described the EHFA as "something from the Europe of the 1930s" and left it at that without examining its accomplishments. Even Jesse Jones, the most conservative force of FDR's New Deal, realized government sometimes must intervene when private initiative and partisan politicians are unable or unwilling to do so.
During World War II, the RFC created an entire industry from scratch and made money on that, too. While Congress and the public dithered over intervention, Jones and Roosevelt shifted RFC focus from domestic economics to global defense 18 months before the attacks on Pearl Harbor. In addition to constructing gigantic factories to manufacture airplanes, tanks and other implements of war, and accumulating strategic materials from around the world, the RFC brought synthetic rubber from the lab to mass production in less than two years, just as Japan conquered Malaya and Java and took over most of the world's natural rubber supply. The U.S. government orchestrated the development of the essential commodity, built and owned the enormous plants, and leased them to corporations for operation and management. Without the government initiative, the Allied nations would have been stuck in place and unable to fight. When the government sold the plants to private industry after the Korean War, The New York Times noted that the synthetic rubber initiative was "exceeded in magnitude only by the atomic energy program." Once again, as Roosevelt and Jones had planned, no industry was nationalized and capitalism and democracy prevailed. In the end, the government made a profit from the sales of the product and later the plants, and the U.S. no longer depended on foreign sources for an essential commodity. During the 1940s, the plants - located primarily along the upper Texas Gulf Coast for security and because of their proximity to oil - pushed employment in the local chemical industries from 200 to 20,000, increased industrial payrolls from $200,000 to more than $60 million and helped propel Houston's population from 410,000 to 726,000.
The RFC under Jesse Jones preserved capitalism during the Great Depression, militarized industry in time to fight and win World War II and showed that government can help people and make money at the same time.
Today, a renewed nonpartisan RFC could rebuild crumbling infrastructure, increase employment, preserve the environment, reduce the debt and enhance national security. All it takes is a belief in government and a person in charge like Jesse Jones, who always kept his eye both on the bottom line and on the common good.
Fenberg, author of the new biography "Unprecedented Power: Jesse Jones, Capitalism and the Common Good," also produced "Brother, Can You Spare a Billion? The Story of Jesse Jones," an Emmy-award winning PBS documentary