The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
A p r i l 18, 1951 To a l l Editors, Columnists, Comment a t o r s — f o r IMMEDIATE RELEASE as f ' -ture article, letter-to-editor, or t . oackground material for editorial writers. Here i s a document of immediate public interest, one of the nation's foremost f i s c a l authorities and respected public servants explains why RFC should be abolished. Since 1936. Marriner S. Eccles has been one of the Board of Governors of the Federal Reserve System, and for 14 years he was chairman of that board. SOUND AND INDISPUTABLE REASONS No. 38 By Marriner S. Eccles I have, ever since the termination of the war, viewed w i t h grave misgivings the continuation and expansion of the Government i n the f i e l d of p r i v a t e lending. There are sound and indisputable reasons why the Reconstruction F i nance Corporation should be abolished. INFLATION AND ITS CONTROL The RFC has added t o the serious postwar i n f l a t i o n a r y pressures by extending i t s lending a c t i v i t i e s and those of i t s a f f i l i a t e , the Federal Nationa l Mortgage Administration, during t h i s period. The recent i n f l a t i o n a r y s i t u a t i o n has been brought about by too much money and c r e d i t i n the hands o f the p u b l i c r e l a t i v e t o the goods and services a v a i l a b l e i n the market. Inflation has g r e a t l y depreciated the purchasing power of the d o l l a r , and as a r e s u l t the cost of l i v i n g has increased approximately 45 per cent since the end o f the war. This i n f l a t i o n has worked a grave i n j u s t i c e upon the most helpless members of our society, the aged, the pensioners, the widows and the disabled, and should not have been permitted. GOVERNMENT LENDING INCONSISTENT 1ITH ANTI-INFLATIONARY PROGRAM The Government i s obviously very inconsistent, however, when i t acts t o balance the Federal budget and r e s t r a i n c r e d i t expansion t o prevent i n f l a t i o n , while at the same time continuing i n force and e f f e c t lending a c t i v i t i e s of Government agencies such as the RFC. There i s no l o g i c a l j u s t i f i c a t i o n f o r r e s t r i c t i n g the flow of good p r i v a t e c r e d i t , and at the same time p e r m i t t i n g and encouraging the granting of u n j u s t i f i e d and unsound loans by Government agencies t o the p r i v a t e economy. The RFC was established i n the depths of the greatest economic depression i n our h i s t o r y f o r the purpose of providing emergency f i n a n c i a l a s s i s t ance to banks and other f i n a n c i a l i n s t i t u t i o n s . No one s e r i o u s l y questioned the need f o r a temporary Government agency designed t o a s s i s t the country i n t h a t economic emergency. We have, however, long since recognized and corrected many of the fundamental weaknesses t h a t brought about our economic collapse i n t-he T h i r t i e s . We have g r e a t l y strengthened our commercial banking system as w e l l as the operation of the organized s e c u r i t i e s exchanges, and we have improved our monetary, c r e d i t , and f i s c a l techniques f o r purposes o f achieving and maint a i n i n g economic s t a b i l i t y . For these and other reasons, the RFC has long since o u t l i v e d i t s usefulness t o the economy and should be abolished without f u r t h e r delay. NO NEED FOR DIRECT GOVERNMENT FINANCING There i s no r e a l place i n a p r i v a t e enterprise economy f o r d i r e c t Government lending to the p r i v a t e economy, any more than there i s a place f o r SEE OTHER SIDE d i r e c t Government ownership of the means of production. There are located throughout the United States more than 14,000 commercial banks, over 600 l i f e insurance companies, more than 500 mutual savings banks, and n e a r l y 6,000 savings and loan associations. I n a d d i t i o n , there are numerous mortgage compani e s , sales finance companies, i n d u s t r i a l loan associations, and other financi n g i n s t i t u t i o n s , which a l l operate i n competition w i t h one another and which rovide assurance t h a t the necessary c r e d i t requirements of the economy are eing, and w i l l continue t o be, met. E The RFC obtains i t s c a p i t a l funds without cost from the Treasury and the taxpayer, and i t pays no taxes of any kind on i t s operations. These p r i v a t e l y owned and operated f i n a n c i n g i n s t i t u t i o n s , on the other hand, must raise t h e i r c a p i t a l I n the p r i v a t e c a p i t a l markets, and they must pay the market r a t e of i n t e r e s t as w e l l as t h e i r share of State, l o c a l , and Federal taxes. I t i s obviously u n f a i r also f o r the Government t o subsidize w i t h c r e d i t those business concerns which cannot stand on t h e i r own f e e t , but nevertheless are competing f o r sales and p r o f i t s w i t h concerns t h a t have t o obtain the funds they use i n the t r i v a t e market. As the Government does not own the business enterprises which i t finances, any p r o f i t s from t h e i r operations accrue t o the p r i v a t e owners. But, i f the loan eventually proves t o be a loss, the Government, and u l t i m a t e l y , the taxpayer, s u f f e r s the amount of such loss. In a d d i t i o n , the bulk of the funds loaned by RFC have gone t o large, r a t h e r than small, businesses, although the argument most f r e q u e n t l y heard i n support of the RFC's continuance i s the add which i t provides t o small business concerns which presumably are unable to obtain c r e d i t elsewhere. In any case, what small businesses need p r i m a r i l y i s managerial and t e c h n i c a l a s s i s t ance rather than more money; t o encourage i n e f f i c i e n t u t i l i z a t i o n of f i n a n c i a l resources by small business i s wasteful, extravagent and i n the end, unproductive. RFC LENDING SUBJECT TO POLITICAL PRESSURES F i n a l l y , the RFC i s designated t o make or guarantee loans t o c r e d i t - w o r t h y borrowers who cannot secure c r e d i t on reasonable terms from the customary sources. Under t h i s arrangement heavy p o l i t i c a l pressures have been brought t o bear upon a l l members of Congress by and on behalf of borrowers who expect t o b e n e f i t from the c r e d i t . I should t h i n k i n these circumstances that members o f Congress would be the f i r s t ones t o want t o l i q u i d a t e the RFC and thereby be r e l i e v e d of these pressures which only add t o t h e i r r e s p o n s i b i l i t i e s and can serve no useful p u b l i c purpose. CREDIT FOR DEFENSE PURPOSES I n l e t t i n g defense contracts, p r i o r i t y should be given to those prime cont r a c t o r s or subcontractors who already have the necessary s k i l l , productive f a c i l i t i e s , and f i n a n c i a l resources. However, when Government help i s essent i a l i n order t o f a c i l i t a t e defense production, such a i d should be provided i n the form of a Government guarantee of p r i v a t e c r e d i t and not by a d i r e c t Government loan. Those guarantees can be handled most e f f e c t i v e l y by a single program such as the V-loan program authorized under the Defense Production Act o f 1950. This program provides f o r the guarantee of p r i v a t e loans by eight agencies engaged i n defense a c t i v i t i e s , using the Federal Reserve Banks as f i s c a l agencies i n arranging the guarantees. The existence of the V-loan program t o provide e s s e n t i a l defense c r e d i t makes unnecessary the continued existence of the RFC f o r t h i s purpose. In conclusion, the evidence from both an economic and a p o l i t i c a l standpoint s t r o n g l y supports the view t h a t l i q u i d a t i o n of the RFC i s long overdue. TO ALL EDITORS: TO THE PUBLIC: Thanks for tear sheet showing how t h i s was used. Distribute t h i s widely. Speak up to your Congressmen and Senators, enclosing copy. Urge others to do likewise. 2 copies free; 50 or more, 2t per copy, postpaid anywhere. DISTRIBUTED BY COMMITTEE FOR CONSTITUTIONAL GOVERNMENT, INC., 205 EAST 42ND STREET, NEW YORK 17, N. Y.
@FedFRASER