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

Saving Capitalism: The Reconstruction Finance Corporation and the New Deal, 1933-1940 James Olson believes that historians have underestimated the role of the Reconstruction Finance Corporation (RCF) in New Deal economic policy and with this book attempts to set the record straight. He thinks that the RFC, despite its origins in the administration of Herbert Hoover, was the major New Deal agency and contributor to the effort to use the federal government to strengthen private property and the status quo. Olson provides a needed history of the RFC, but he is less convincing in demonstrating the agency's primary role in New Deal economic policy efforts.

The first two chapters draw heavily on Olson's previous work, Herbert Hoover and the Reconstruction Finance Corporation, 1931-1933 (1977) and cover the first year of RFC operations. The most interesting finding is the major role played by Hoover's associates in shaping the emergency New Deal financial legislation of 1933.

Olson then presents an interesting portrait of Jesse Jones, the chairman of the corporation from 1933 to 1939, including his efforts to build the RFC into a personal fiefdom and his important role in reconstructing the banking system in 1933-34. The middle part of the book discusses competing economic recovery theories and Jones's attempts to steer the RFC on a middle course between these differing viewpoints. Jones wanted the RFC to restore liquidity in order to lift the country out of depression but without fundamentally changing the economic system. A chapter outlining the relationship between the RFC and the National Recovery Administration provides an excellent description of the politics of New Deal policy-making but is hampered by a weak analysis of the economic forces contributing to the contraction and slow recovery.

Economic recovery contributed to a decline in RFC importance by 1936, but the recession of 1937-38 forced a change in New Deal economic policy and revived the fortunes of the agency. Roosevelt drew from both the anti-monopolist and the deficit-spending schools in developing the second New Deal. Olson finds that Jones continued to try to steer a middle course between competing viewpoints but maintained his reluctance to expand RFC direct lending to stimulate demand. The final chapter covers the expanding role of the RFC beginning with the German invasion of France and the Low Countries in 1940 and continuing through the Second World War.

Olson finds that the RFC failed to bring about economic recovery, but he lists as accomplishments during the 1930s its activities in bank reconstruction, postponing even worse problems for the railroad industry, creation of a secondary market for FHA mortgages, and playing an important role in financing other New Deal programs. He asserts that the monetary experiment of the 1930s involving the RFC and the Federal Reserve failed because it concentrated on trying to revive the supply of credit while failing to address the problem of a lack of demand. Only massive deficit spending associated with the Second World War was able to break the liquidity trap and end the Great Depression.

Olson has provided a needed history of the Reconstruction Finance Corporation. He is at his best in discussing the personalities and politics involved in RFC operations. His description of New Deal policy-making as an exercise in pragmatism supports the findings of other researchers. He is less successful in evaluating the economics of the RFC and the New Deal. His discussion of the monetary experiment of the 1930s, including his discounting of the potential role of the Federal Reserve as a lender of last resort, ignores recent work in that area. The analysis of the economics of policy options and actions is sometimes confusing and inconsistent.

Despite these reservations, the book is a useful addition to the literature on the New Deal and the Great Depression. It will be of special interest to those interested in the operations of the RFC and in the politics of New Deal economic policy-making.

Richard H. Keehn is professor of economics at the University of Wisconsin, Parkside. He has written articles on banking history and the economics of the 1920s and 1930s and is currently working on an examination of Reconstruction Finance Corporation lending through February 1933.
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Author:Keehn, Richard H.
Publication:Business History Review
Article Type:Book Review
Date:Mar 22, 1990
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