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Louisville Industrial


Research Department
Federal Reserve Bank of St. Louis
Federal Reserve Bank of St. Louis







Ernest J. Hopkins
Senior Economist

February 1945
Federal Reserve Bank of St. Louis
Federal Reserve Bank of St. Louis


Frank H. Neely, Chairman, Executive Vice President and Secretary, Rich’s, Inc.
Atlanta, Georgia
J. F. Porter, Deputy Chairman, President and General Manager
Tennessee Farm Bureau Federation, Columbia, Tennessee
W. D. Cook, President, First National Bank, Meridian, Mississippi
George J. White, President, First National Bank, Mount Dora, Florida
Robert Strickland, President, Trust Company of Georgia
Atlanta, Georgia
Fitzgerald Hall, President, Nashville, Chattanooga and St. Louis Railway
Nashville, Tennessee
Ernest T. George, President, Seaboard Refining Company, Ltd.
New Orleans, Louisiana
J. A. McCrary, Vice President and Treasurer, J. B. McCrary Company, Inc.
Atlanta, Georgia
Rufus C. Harris, President, The Tulane University of Louisiana
New Orleans, Louisiana

Keehn W. Berry, President, Whitney National Bank, New Orleans, Louisiana

John E. Sanford, Chairman, President, Armour Fertilizer Works, Atlanta, Georgia
A. M. Lockett, President, A. M. Lockett and Co., Ltd., New Orleans, Louisiana
George Winship, President, Fulton Supply Company, Atlanta, Georgia
I. C. Milner, Executive Vice President, Gate City Cotton Mills, Atlanta, Georgia
W. W. French, President, Moore-Handley Hardware Company
Birmingham, Alabama

W. S. McLarin, Jr., President
Malcolm H. Bryan, First Vice President
L M. Clark, Vice President
H. F. Conniff, Vice President
V. K. Bowman, Vice President
C. R. Camp, Assistant Vice President
S. P. Schuessler, Assistant Vice President
J. R. McCravey, Jr., Assistant Vice President
J. E. Denmark, General Auditor
Pollard Turman, General Counsel
Federal Reserve Bank of St. Louis




P. L. T. Beavers, Managing Director, Birmingham, Alabama
Edward L. Norton, Chairman, Chairman, Voice of Alabama, Inc.
Birmingham, Alabama
Donald Comer, Chairman of the Board, Avondale Mills, Birmingham, Alabama
James G. Hall, Executive Vice President, First National Bank, Birmingham, Alabama
Gordon D. Palmer, President, The First National Bank, Tuscaloosa, Alabama
Wm. Howard Smith, Planter and Cattle Raiser, Prattville, Alabama
M. B. Spragins, President, First National Bank, Huntsville, Alabama

P. L. T. Beavers, Managing Director
H. C. Frazer, Assistant Manager
H. J. Urquhart, Cashier
*L. W. Starr, Assistant Ccshier

George S. Vardeman, Jr., Managing Director, Jacksonville, Florida
Charles S. Lee, Chairman, Citrus Grower, Oviedo, Florida
Frank D. Jackson, President and General Manager
Jackson Grain Company, Tampa, Florida
Walter J. Matherly, Dean, College of Business Administration, University of Florida
Gainesville, Florida
J. C. McCrocklin, President, First National Bank, Tarpon Springs, Florida
J. L. Dart, President, Florida National Bank, Jacksonville, Florida
Bert C. Teed, Executive First Vice President, First National Bank
Palm Beach, Florida

George S. Vardeman, Jr., Managing Director
T. A. Lanford, Cashier
T. C. Clark, Assistant Cashier

* On Leave—Military Service
Federal Reserve Bank of St. Louis



Joel B. Fort, Jr., Managing Director, Nashville, Tennessee
W. E. McEwen, Chairman, County Farm Bureau, Williamsport, Tennessee
Clyde B. Austin, President, The Austin Company, Inc., Greeneville, Tennessee
W. Bratten Evans, President, Tennessee Enamel Manufacturing Company
Nashville, Tennessee
Leslie R. Driver, President, First National Bank, Bristol, Tennessee
B. L. Sadler, President, First National Bank, Harriman, Tennessee
Edward Potter, Jr., President, Commerce Union Bank, Nashville, Tennessee

Joel B. Fort, Jr., Managing Director
Winslow E. Pike, Assistant Manager
E. R. Harrison, Cashier

E. P. Paris, Managing Director, New Orleans, Louisiana
John J. Shaffer, Jr., Chairman, Sugar Planter, Ellendale, Louisiana
E. F. Billington, Vice President, Soule Steam Feed Works
Meridian, Mississippi
John Legier, President, National American Bank of New Orleans
New Orleans, Louisiana
J. F. McRae, President, The Merchants National Bank, Mobile, Alabama
T. G. Nicholson, President, First National Bank of Jefferson Parish
Gretna, Louisiana
E. P. Paris, Managing Director
M. L. Shaw, Cashier
F. C. Vasterling, Assistant Cashier
W. H. Sewell, Assistant Cashier
L. Y. Chapman, Assistant Cashier
Federal Reserve Bank of St. Louis


Federal Reserve Bank of St. Louis

his pamphlet is the third in a series on the subject of industrial pro­
motion methods that the Board of Directors of the Federal Reserve
Bank of Atlanta has authorized the Research Department of the Bank
to prepare for general publication. The first pamphlet, entitled Missis­
sippi’s BAWI Plan, deals with Mississippi’s effort to promote a better
balance between agriculture and industry by permitting local govern­
mental units to issue bonds, under state direction and control, for the
purpose of providing buildings and equipment to be used for manufac­
turing purposes by client concerns. The second, The Alabama State
Docks, gives an account of the development and operation of Alabama’s
state-owned dock facilities at Mobile. The present pamphlet describes the
nature and functions of the Louisville Industrial Foundation, a quasi­
public industrial-promotion organization of Louisville, Kentucky.
Running through these studies is a concern with methods by which
industrial development may be stimulated within a given area. The Mis­
sissippi study describes a method by which local governmental units ac­
tively participated in such promotion. The Alabama study describes a
method of assisting the industrialization process by means of a stateowned and state-managed enterprise. The Louisville study offers an ex­
ample of industrial stimulation achieved by means of a privately owned
and managed corporation that has as its chief purpose the economic ad­
vancement of its community.
In thus publishing these studies of public or semipublic means of in­
dustrial stimulation, the Federal Reserve Bank of Atlanta takes a com­
pletely neutral position. The Bank wishes merely to contribute to the
information about what has been tried in the way of regional and com­
munity self-help to bring about industrial development within a given
area. The undertakings that have so far been described were selected for
study because they seemed notable in themselves and had not previously
been described in detail.
Underlying its interest in these plans of community self-help is the
Bank’s concern with the achievement of a better balance between agricul­
ture and industry in the region that it serves. Composed of the states of
Alabama, Florida, and Georgia and parts of Louisiana, Mississippi, and
Tennessee, the Sixth Federal Reserve District is an area that traditionally
has been largely agricultural in character. The growing use of machine
technology and of improved production methods has tended to bring
about an excess supply of labor in the region’s agriculture, thus influ­
encing farm people to leave their homes in order to find employment else­
A greater expansion of industrial employment is the paramount need
of the region if it is to give sustenance to its people. In studying the
means by which such expansion may be attained, the Bank is simply ex­
pressing its interest in that region with which it is primarily identified.
This interest is in no sense original with the Bank for it is an interest
that permeates the entire fabric of Southern thought on the need for a
Federal Reserve Bank of St. Louis


greater degree of industrialization. In publishing the results of its studies
in pursuit of this interest, the Bank is endeavoring to perform a public
service by sharing with others the results of its findings.
Individual copies of this pamphlet, or of any other of the series, will
be provided without cost to those who request them. Bulk orders for cop­
ies will be gladly filled, but a charge will be made for actual printing
costs and postage.
W. S. McLarin, Jr.
February 1945
Federal Reserve Bank of St. Louis

I viii ]


I.General Description of the Foundation......................................


A Private-Public Institution........................................................


Purpose of the Study....................................................................


Device of the Revolving Fund....................................................


Limits of the Investment Field....................................................


Constructive Influences of the Foundation................................


Policy of Persistent Support of Clients........................................


Policies of Adaptive Financing........................................


Attendant Services and Business Aids........................................ 11
II. The Birth of the Foundation........................................................ 13
The Background of Local Depression........................................ 13

Proposed Standards of the Foundation........................................ 14
Raising the Community Fund........................................................ 16
Incorporation of the Foundation.................................................... 18
III. Major Periods of the Foundation’s Development........................ 20

The Four Major Periods................................................................... 20

The Experimental Period, 1917-21................................................ 21
The Bull-Market Period, 1923-29 ................................................


The Depression Period, 1930-37 ................................................


The Recovery and War Period, 1938 to the Present.................... 36

Summary of the Investment Activities............................................ 37
IV. The Foundation at Work................................................................... 39

Varied Character of the Case Record............................................39
Cleaning Powder, Tobacco Foil, Aluminum................................ 40

Petroleum Refining........................................................................... 41
Federal Reserve Bank of St. Louis




Products of Cotton and Cottonseed............................................ 42

School Equipment and Other Wood Products........................ 42
Furniture and Other Wood Products............................................ 44
Commercial Cold Storage and Ice Manufacture............................44

Shoelace Manufacture....................................................................... 44

Manufacture of Pipe Organs........................................................... 45


Production of Bakery Goods........................................................... 46

Manufacture of Enameled Metal Products.................................... 47
Production of Stamped-Metal Devices............................................ 48

Macaroni Manufacture................................................................... 49
Printing............................................................................................... 50

Manufacture of Work Garments and Uniforms............................ 51
Packed Poultry Meat...............................................


Financing of a New Public Airport................................................ 52
V. Implications of the Foundation’s Experience..................................54

Developmental Role of Investment Funds....................................54

The Revolving Fund as a Developmental Device........................55

Relative Desirability of Types of Enterprise................................ 55
The Marginal Financial Area........................................................56
The Importance of Services to Clients............................................57
The Importance of Flexible Financing........................................ 58

The Question of Equity Participation............................................59
The Importance of Sound Appraisal............................................60

The Community as a Capital Source............................................60
Appendix A................................................................................................... 63
Appendix B.................................................................................................... 66
Federal Reserve Bank of St. Louis




1. Chronological List of 46 Situations Financed by the Louisville
Industrial Foundation, Stating Type of Production Financed,
Description of Enterprise at Time of First Financing, and Sub­
sequent Status of Enterprise............................ ........................


2. Types of Production Financed by the Louisville Industrial1
Foundation, 1917-44 (June 30), Stating Number of Enterprises
and Amounts of New Capital Provided, by Industry Groups .


3. Subscribers to the Original Fund of the Louisville Industrial
Foundation by Occupational Categories.................................... 18
4. Summary of Financial Activities of the Louisville Industrial
Foundation During Its Experimental Period, 1917-22 .... 23
5. List of 15 Financings of the Louisville Industrial Foundation
Undertaken in the Experimental Period, 1917-22, with Subse­
quent Developments of Each Financing.................................... 24
6. Summary of Financial Activities of the Louisville Industrial
Foundation During Its Bull-Market Period, 1923-29 ................


7. List of 15 Financings of the Louisville Industrial Foundation
Undertaken in Bull-Market Period, 1923-29, with Subsequent
Developments of Each Financing................................................ 28
8. Summary of Financial Activities of the Louisville Industrial
Foundation During Its Depression Period, 1930-37 ................


9. List of 5 Financings of the Louisville Industrial Foundation
Undertaken in Depression Period, 1930-37, with Subsequent
Developments of Each Financing................................................ 32
10. Summary of Financial Activities of the Louisville Industrial
Foundation During Its Recovery-and-War Period, 1938-44
(June 30)........................................................................................... 33
11. List of 11 Financings of the Louisville Industrial Foundation
Undertaken in Recovery-and-War Period, 1938-44 (June 30),
with Subsequent Developments of Each Financing................ 34

12. Total Investments of the Louisville Industrial Foundation, 191744 (June 30), by Periods and by Types of Investment .... 36
13. Investments of New Money, Initial and Additional, by the Louis­
ville Industrial Foundation, 1917-44 (June 30), by Periods
and by Status of Enterprise at Time of Initial Investment . . 36
14. Comparison of Completely New Ventures, Brought-In Concerns,
Recently Founded and Old-Established Enterprises in the 44
Manufacturing Financings of the Louisville Industrial Foun­
dation .............................................................................................. 57
Federal Reserve Bank of St. Louis



A Private-Public Institution
For nearly three decades past, the expansion of manufacturing activity
in Louisville, Kentucky, has been aided by a rather unusual local insti­
tution, the Louisville Industrial Foundation.1 The Foundation presents
a combination of private business characteristics and quasi-public motives.
It was incorporated under the laws of Kentucky in 1916 as a technically
profit-making enterprise, and its structure is the conventional one, con­
sisting of a board of 15 directors, elected by the stockholders; an execu­
tive committee of the board; and a salaried administrative personnel.
The articles of incorporation on their surface are those of a commercial
investment company set up to deal in industrial securities. But one unique
clause in the articles defines a broad public purpose, and this purpose
has pervaded the activities of the Foundation. “The nature of its busi­
ness,” this clause sets forth, “shall be to advance and develop the City
of Louisville and vicinity industrially.”2
1 Other somewhat similar foundations exist and several of these also provide tem­
porary capital to industries. In'its undated mimeographed pamphlet, Community In­
dustrial Financing Plans, the Chamber of Commerce of the United States lists and de­
scribes 22 such organizations in the following communities: Akron, Ohio; Baltimore,
Maryland; Brockton, Massachusetts; Danville, Illinois (2); Easton, Pennsylvania; El­
mira, New York; Grand Rapids, Michigan; Greater Muskegon, Michigan; Hopkinsville,
Kentucky; Hoquiam, Washington; La Crosse, Wisconsin; Little Rock, Arkansas; Louis­
ville, Kentucky; New Bedford, Massachusetts; Omaha, Nebraska; Portland, Maine;
Rochester, New York; Scranton, Pennsylvania; Tulsa, Oklahoma; Wheeling, West Vir­
ginia; and Wilkes-Barre, Pennsylvania. Among these, the Louisville Industrial Founda­
tion is the fifth in age, the second in size of capital fund, and one of the best known.
2 See Articles of Incorporation, Sec. Ill, p. 63.
Federal Reserve Bank of St. Louis


It was the central theory of the founders of this institution that the
work of community industrial development, supported in most cities by
annual subscriptions from the business public, could be conducted as a
form of business, involving the investment of capital for a return and
capable at least of sustaining itself, if not of making profits. In accordance
with this theory, the Foundation has pursued two lines of activity.
The first, which may be termed quasi-public, is that of an industrial
bureau. The Foundation collects and disseminates information and d£ta
concerning the Louisville area, answers business queries, and at times
compiles more than ordinarily reliable industrial briefs for site-seeking
manufacturing concerns. This aspect of its work has brought results; in
28 years, 69 civilian enterprises and two important wartime developments,
for which the Foundation supplied the preliminary contacts and informa­
tion, have become established in Louisville. Initially, the 69 private
companies had a total capital of $15,263,900, and their first-year pay rolls
aggregated $3,928,540; many of them have expanded considerably since
their arrival in the area. All these enterprises provided their own capital.
This development service, being free, brings the Foundation no mone­
tary return.
The development work, however, is supported by the second major
function, which is that of making medium-term capital loans to manu­
facturing enterprises that cannot obtain adequate capital from other
sources. The corporation has a fund, formed originally by the resident
business firms and townspeople of Louisville, during a public subscription
drive held in 1916, and maintained intact since that time. The sub­
scribers consolidated their savings primarily as a contribution to the
industrial advancement of their community, but in doing so they
purchased common stock in the Foundation; in this way, the quasi-public
promotional endowment became also the paid-in capital of the corpora­
tion, and its administration was confided to the business leaders who
became the corporation’s directors. This community fund, when all
subscriptions were collected, amounted to $875,759; earnings from invest­
ments, above administrative expenses and losses, have since increased the
total assets of the Foundation to $983,659?
From its resources, the Foundation upon occasion provides temporary
capital, in amounts up to $100,000 and for periods as long as 10 years, to
selected manufacturing companies whose plants must be located within
the Louisville area. It has made such capital loans, during its 28 years of
life, to 44 manufacturing establishments. These enterprises, which are
listed in table 1, have been additional to the 71 previously mentioned.
Two civic situations, one of them a new public airport, also have been
The loans to manufacturers are made for the construction or enlarge­
ment of plant, for the purchase or modernization of mechanical equip­
ment, and for other purposes that are commonly associated with equity
s Semiannual Report of the Louisville Industrial Foundation, June 30, 1944.
Federal Reserve Bank of St. Louis


Type of Production

First Financing by Foundation
Description of Enterprise

Wood Products
Cigarette foil
Automobile parts
Petroleum refining
Cottonseed products
Dairy products
Business equipment
School furniture
Wood products
(Teachers’ salaries)
Patent desks
Cold storage
Automobile bodies
Electrical devices
Railroad metal
Drying machinery
Toy balloons
Petroleum refining
Pipe organs
Structural steel
Water heaters
Bakery products
Bakery products
Enameled metal
Stamped metal
Metal sundries
Building materials
Wood products
Printing, magazine
Dairy products
Food specialties
Wood products
Printing, job
Work garments
Cotton rope
Bakery products
Metal foil
Food specialties
Packed poultry meat
(New public airport)
Radio cabinets


Completely new
Completely new
Completely new
Completely new
(Board of Education)
Completely new
Completely new
Recently founded
Recently founded
Completely new
Completely new
Completely new
Completely new
Completely new
Recently founded
Recently founded
Completely new
Recently founded
Recently founded
Completely new
Recently founded
(City-County Air Board)
Recently founded

a Absorbed into national company, 1925.
b Absorbed into national company, 1931.
c Originally an affiliate, became independent 1934.
d Merged voluntarily with enameled-metal company, 1935.
e Purchased by magazine company, 1944.
Federal Reserve Bank of St. Louis


Subsequent Status
of Enterprise
In operation today
In operation today
In operation today
In operation today
In operation today
In operation today a
In operation today
In operation today
Liquidated, 1930
Liquidated, 1926
Loan repaid, 1921
Liquidated, 1928
In operation today b
Liquidated, 1926
In operation today
Liquidated, 1942
In operation today
Liquidated, 1927
In operation today
Liquidated, 1927
In operation today
Liquidated, 1944
In operation today
In operation today
In operation today
In operation today
In operation today c
In operation today
In operation today
In operation today
Merged, 1935d
In operation today
In operation today
In operation today e
In operation today
In operation today
In operation today
In operation today
In operation today
In operation today
In operation today
In operation today
In operation today
In operation today
In operation today
In operation today

rather than with borrowed capital. The investments are retired gradually
by the benefited enterprises through term payments, usually made
monthly; are secured by first mortgages on the industrial property; and
bear current rates of interest, normally 5 or 6 per cent in recent years.
The Foundation supports its capital loans by a variety of business services,
financial and other, rendered to the client establishments. Since its
credits are extended only to manufacturing companies that cannot obtain
the equivalent amount of capital on comparable terms from other
sources in the same area, the Foundation performs a strategic role in
rounding out and supplementing Louisville’s structure of organized
On its surface, the function of capital investment is a money-making
activity. But, in turn, the Foundation’s financial operations have always
been influenced by public considerations. Membership on the board of
directors, which expressly authorizes each transaction, is regarded as a
community honor and civic responsibility.4 Underlying each act of
capital provision has been the prevailing motive of providing new
employment, pay roll and industrial profits for the people of Louisville
or, in times of depression, of preventing industrial decline. The enterprises
financed by the Foundation have included 13 that were completely new, 8
that were recently founded and ready for expansion through capital, 12
that were brought in from other points, and 11 old-established concerns.
With few exceptions these have been locally owned, independent in
status, relatively small in size (none with more than 400 workers at the
time of the Foundation’s first investment), and engaged in types of
production regarded as complementary to other local enterprises and
appropriate to the area itself. The use of capital by the Foundation,
accordingly, has had a considerable element of economic planning,
distinct from the element of profits.
The Foundation has disbursed no dividends to its stockholders. All
costs of the development work and business services have, indeed, been
covered from the investment earnings, and the Foundation’s assets have
increased with time. But the return to those who contributed the fund
4 The officials of the Foundation in 1944 were as follows: Officers: President, Wil­
liam B. Harrison; vice president, J. C. Engelhard, comptroller of the City of Louisville;
vice president, Robert Montgomery, vice president of the Louisville Gas and Electric
Company; secretary-treasurer, F. B. Ayres.
Directors: Robert P. Bonnie, secretary-treasurer, Kentucky Color and Chemical Com­
pany; George O. Boomer, vice president, the Girdler Corporation; C. R. Bottorff, presi­
dent, Belknap Hardware and Manufacturing Company; W. S. Campbell, vice president,
Kentucky and Indiana Terminal Railroad; A. H. Dick, president, Louisville Textiles,
Inc.; J. C. Engelhard; Eugene D. Hill, president, Louisville Cement Company; William
B. Harrison; E. H. Hilliard, J. J. B. Hilliard and Sons, investment bankers; E. J.
Hoddy, general development agent, Louisville and Nashville Railroad; F. H. Miller,
president, Louisville Railway Company; Robert Montgomery; Murray P. Nicol, presi­
dent, Struck Construction Company; E. J. O’Brien, Jr., E. J. O’Brien and Company; and
William A. Stoll, secretary-treasurer, Stoll Oil Refining Company.
Executive Committee: Messrs. Harrison, Engelhard, Montgomery, and Hilliard;
Ayres, secretary.
Federal Reserve Bank of St. Louis


has been indirect, accruing from the participation of local business firms
and residents in the increased community income and social wealth that
have resulted from the industrial development. As an instance of this
process, the well-known Reynolds Metals Company came to Louisville
in its infancy, in 1917, partly because the Foundation existed, and its
early expansion was fostered by a capital loan of $30,000 from the com­
munity fund. Today this one group of interests, grown to a $91,000,000
national corporation, operates nine of its more than 40 major war plants
in the Louisville area, and employs many thousands of workers within
the community. Owing to this and other cases, there is little disposition
in Louisville to question that the community-fund formation of 1916 has
been a paying investment, though the return to the individual investors
is impossible to compute.

Purpose of the Study
The 28-year experience of the Louisville Industrial Foundation appears
significant at the present time in relation to two impending issues of the
readjustment period. In many communities, where the necessity of
sharing in the postwar revival of civilian production is perceived, com­
munity funds at present are being contemplated or actually raised.
Problems are involved in this activity. Since the Foundation has encoun­
tered virtually every difficulty and has won virtually every type of success
connected with community-fund administration, its record in this respect
may have practical advisory value.
But in addition, the Foundation has specialized, for many years past,
in the difficult and controversial field of small business financing, and
this aspect of its history offers a suggestive case study bearing upon a
major problem of banking and investment in the present time. The
particular methods and technics developed in Louisville in capitalizing
the small personal enterprises of that area may or may not be universally
applicable, but they have had a path-finding character, in practice have
met with considerable success, and, accordingly, are described in some
detail in this report.

Device of the Revolving Fund
The primary working policy of the Foundation, whether in relation to
its developmental work or to its investment activity, is the treatment of
its capital as an interest-bearing revolving fund. The original $875,759
of paid-in capital, loaned, repaid, and reloaned, has provided $3,849,045
in gross industrial investment from the beginning of 1917 to June 30,
1944.® This policy contrasts sharply with the practice of communities
that have raised smaller funds and expended them outright, for purposes
s The gross amount has included $2,603,947 in “new money” for capital purposes in
manufacturing and $200,000 in civic situations, the remainder including refinancing in­
vestments and one current working-capital account.
Federal Reserve Bank of St. Louis


of advertising or to subsidize particular enterprises. The argument that
is used to justify the nonpayment of dividends by the Foundation,
namely that the return upon investment is indirect, is, to be sure, the
same argument that is ordinarily used in behalf of promotional or
subsidy expenditures. But here the resemblance ceases, for whereas an
advertising or subsidy appropriation is usually expended outright, the
original capital fund that was formed in Louisville has turned over four
and a half times in 28 years and has not only renewed itself but has
increased in size and is larger than ever today.
No further fund drive for Foundation purposes has been held since
1916. The interest earnings from investments have covered all current
expenses,6 whether of the free industrial service, the work of loan collec­
tion and accounting, or of the aids to client industries. Also, this income
has overcome four items of early capital loss amounting to $209,021, a
contingent loss of $31,304 from the closing of a bank in the depression,
and five items of interest write-off amounting to $57,895. Meanwhile the
increase in total assets above the original paid-in capital has amounted
to 12.3 per cent, or an average annual gain of 0.44 per cent for the
28-year period.
Under the revolving-fund plan, in short, the enterprises that borrowed
the community capital may be said to have paid the costs of Louisville’s
development, as far as that development may be ascribed to the Founda­
tion; and there is the further important fact that these enterprises have
not been recipients of charity and, though temporarily indebted, have
retained their independent status. The Foundation on June 30, 1944,
had liquid assets of $399,355 and a reserve against possible losses amount­
ing to $90,000, in addition to industrial investments of $567,698. The
revolving fund, accordingly, was apparently in a position to protract its
developmental and financial services indefinitely.

Limits of the Investment Field
The field of the Foundation’s investment activities is definitely restricted.
All loans must be made within the Louisville metropolitan area, which
had in 1940 a population of 435,408. No loans may be made to trade,
service, construction, or other enterprises outside the field of manu­
The supplemental position of this financial service constitutes another
important limitation. As a community institution, the Foundation
avoids competing with the banking concerns, investment banks, building
and loan associations, and other loan-making institutions of its area.
Maintaining this supplemental position has been a matter of canvassing,
in each particular case, the possibility that an applicant enterprise might
obtain its needed capital from some other local source.
The building and loan associations of Louisville, with which the
e Total expenses of the Foundation in the first half of 1944 amounted to $17,619,
this amount being typical of recent periods. This includes $5,945 income taxes.
Federal Reserve Bank of St. Louis


Foundation most nearly competes, emphasize the residential rather than
the industrial mortgage. The investment banks deal, ordinarily, with a
larger type of enterprise.
In relation to the commercial banks, the Foundation’s position has
been one of independence plus co-operation. The institution preserves
its supplemental character by accepting at times a type of risk somewhat
more marginal than that desired by the usual bank and also by lending
for longer periods and in larger amounts in ratio to the value of security
than is ordinarily done by banks. Because of these differences in standards,
the Foundation has made no loans in participation with banks. It does
not lend for the purpose of debt consolidation or take over debts from
previous creditors, including banks. Various stand-by agreements, how­
ever, have been made with banks, for example, in cases in which a bank
has established a short-term line of credit for working-capital purposes
at the same time that the quasi-public agency has supplied five-year or
10-year capital for expansion purposes. For many years past, no banks
have been directly represented on the board of the Foundation, though
its directors at times have also been directors of banks. Thus the Founda­
tion is not a credit pool of the local banks, though it performs, inde­
pendently, a supplemental service.
Serving as the final restriction on the field of investment is the policy
of avoiding too hazardous risks. The Foundation is administered on
strict business principles; its directors are businessmen who do not
abandon prudence in investment when serving the community. Even
though the Foundation operates at times in a twilight zone of risk, in
practice that zone is narrow. For many years past, the first mortgage
loan has been the primary transaction. In appraising risks, the executive
committee considers first the experience and ability of the man or men
operating the enterprise, next the prospective marketability of the
product, and the breadth or reliability of the market base. Most of the
enterprises financed in recent years have been basically sound, and many
of the financings have been in aid of wartime and other constructive
In spite of the policy of safety, however, the orthodox standards of
risk acceptance have been relaxed at times. The weak capital position is
quite commonly financed. Where the application of new capital has
promised a definite increase in employment, or would save an established
enterprise from the necessity of releasing workers, a certain degree of
hazard has been assumed.
Occasional criticisms may be heard in Louisville to the effect that the
Foundation is too conservative. Some basis exists for these criticisms:
for the 44 manufacturing situations accepted, the record shows 356
rejections; also, only two strictly new enterprises and no importations of
enterprise have been financed since 1930.7 In brief, the investment
7 Since 1930, however, many enterprises have been brought in that provided their
own capital. This situation, of course, is regarded as preferable by the Foundation.
Federal Reserve Bank of St. Louis


activity, except in the initial period, has had only partially the character
of a venture foundation. But numerous capital-needing local enterprises
have received a financial aid that they could not otherwise have obtained,
and no capital loss has been sustained since one that resulted in 1930
from a situation entered in 1921.

Constructive Influences of the Foundation
Within the four limits described—those of the geographical area, of the
manufacturing investment, of the supplemental position, and of business
conservatism in the use of its capital—the Foundation has exerted a
strategic influence over the manufacturing economy of Louisville. A
community that in 1916 was limited mainly to the distilling, tobacco, and
woodworking industries is today a center of diversified manufacturing.
Much of this development is due to the industrial work of the Foundation.
The variety of products it financed directly is seen in table 2.
By two of its loans, the Foundation assisted in expanding the dairying
industry in Louisville, and this industry has had a far-reaching effect
upon agriculture in the bluegrass area. Another loan was instrumental in
making Louisville an important aluminum, cigarette foil, and magnesium
center. In woodworking, the fund has been used to encourage within
its area the higher forms of lumber processing. Almost equally construc­
tive has been the financing of small food-products plants, the output of
which has replaced certain edible products that formerly were imported.
Another investment helped to give Louisville its first major commercial
cold-storage plant. A recent transaction enabled the City-County Air
Board to purchase a needed airport, which in turn is utilized by two
important aircraft factories. Finally, Louisville was deficient in metal­
working and other heavy industries until the Foundation helped to
capitalize additional steel, metal-stamping, metal-enameling, and ma­
chinery-making plants.
By encouraging the private investor to place his funds in local indus­
tries, the institution has performed one of its most constructive services.
Under its charter, the Foundation may advance no more than one third
of the total tangible capital value of any manufacturing enterprise. This
limitation necessarily implies that private ownership must hold the
majority interest. Accordingly, the quasi-public corporation has found
itself repeatedly in a participating position with resident manufacturing
proprietors, whether silent backers or active owner-managers. This
circumstance has induced local private capital to flow, apparently to a
somewhat unusual degree, into those local enterprises that the Foundation
has accepted as its clients. Various instances have occurred in which a
local investor has agreed to put money into a manufacturing enterprise
because the Foundation also was behind that enterprise, had appraised
and approved it, would service it, and had undertaken a financial and
moral commitment for its support. In effect, the Foundation has provided
a type of guarantee behind the risks of the local industrial investor.
Federal Reserve Bank of St. Louis






Number and Types of Enterprises Financed



Industry Group

3 0^£


Metal products a . . .
Food products b . . . .
Wood products c . . .
Fiber products d . . . .
Civic situations e . . .
Printing f......................
Petroleum products . .
Unclassified e................
TOTAL, 46 Financings .



. —

. 1
. 1
. 14

<» 3 H
►3- a-2.

a q
ft- 5.

ft /-s









Co '***




Amount of
New Capital

$2,803,947 h

a Cigarette foil, automobile parts, business equipment, automobile bodies, electrical de­
vices, railroad metal, drying machinery, structural steel, water heaters, enameled metal,
stamped metal, bedsprings, metal sundries, metal foil.
b Dairy products, cold-storage service, bakery products, macaroni, food specialties, packed
poultry meat.
c Plywood and veneer, furniture, school furniture, patent desks, laminated woods,
radio cabinets.
H Garments, shoelaces, hosiery, work garments, cotton rope.
e Teachers’ salaries (loan) , interim financing of new airport.
f Magazine printing, general job printing.
e Cottonseed products, toy balloons, pipe organs, synthetic building materials,
h Total includes $2,071,897 initial investment and $532,050 subsequent investment for
manufacturing purposes, and $200,000 loaned to civic agencies.

Policy of Persistent Support of Clients
Only once in its history has the Foundation foreclosed upon a debtor
enterprise, although, technically, it could have done so many times. The
fundamental motive of upbuilding industries and creating employment
has led to a constructive policy in relation to credits that is not distin­
guishable from the policy of actual equity participation in point of the de­
sire to keep the client manufacturing enterprises alive and to put them in
a stable operative and financial position. What is especially notable in this
connection is that the Foundation’s policy of persistent support of each
undertaking, though based upon the public motive, has also proved to be
sound from a business point of view. This policy was not applied in the
earliest years, and some business failures and losses resulted; but, since
affirmative aids to borrowers became the working principle, the enter­
prises in most cases have attained success, and in all cases have reimbursed
Federal Reserve Bank of St. Louis


the fund, and paid the interest charges in full, sometimes after many years.
This policy of loan support has arisen largely from the exigent nature
of the Foundation’s financial field and also from the long duration of its
accounts. Because of the characteristic variability of the position and
earnings of the smaller enterprises, few investments have been retired
without departure from the contract schedules in one direction or the
other. Of the 44 manufacturing accounts, 18 were retired ahead of time—
2 within a year, 7 in less than 4 years—and, since no penalty for premature
retirement was charged, the Foundation in these cases forfeited anticipated
interest earnings. Other accounts lagged, were extended and, on 15
occasions, were refinanced. Of 18 accounts that were still on the Founda­
tion’s books at the end of 1943, 9 were of more than the standard 10
years of age: 1 of these was more than 23 years old; 1, 20 years; and 2, 19
years. Of the retired accounts, 1 was fully paid up after 23 years and 9
months, 1 after 22 years and 4 months, 1 after 15 years, and 1 after 14 years.
Had not the Foundation adapted its credit policy to these variations,
and, further, extended active aids to its clients in time of need, many
enterprises that ultimately retired both principal and interest in full
would not have survived.

Policies of Adaptive Financing
This policy has had an important reciprocal aspect. Because the Founda­
tion has been a constructive creditor, and also because it represented the
community and was operated by leading businessmen, the client manu­
facturing concerns and their backers generally have regarded a debt to
this institution as a debt of honor and have been pertinacious in ulti­
mately retiring the obligation.
The policy of seeing the enterprises through to success has taken
several forms, the first of which is financial. In the cases of 17 clients, the
first outlay of Foundation capital proved insufficient. In these cases,
additional capital loans were made, numbering 30 in all. These subse­
quent advances were generally consolidated with the earlier unpaid
balances and accompanied by time extensions of the entire debt. In all, 14
accounts have been extended and refinanced, many others informally ex­
tended. In five cases, where clients encountered emergencies that jeopar­
dized their business positions, amounts of accrued interest were written off.
The second form is contractual. The Foundation also has increasingly
sought to adapt its collection terms to each enterprise’s prospective
ability to pay. One adaptive device, embodied in most contracts made
since 1939, has represented an endeavor by the Foundation to forecast
the business position of the client and to meet that position by grading
the payments. For example, on a 10-year loan of $100,000, the contract
called for monthly payments of $500 for the first 2 years, $700 in the
third year, $800 in the fourth, $900 in the fifth and sixth, and $1,000
thereafter. This contract was based on the expectancy of a progressive
increase in the business earnings. On a 5-year loan of $40,000, the
monthly payments were fixed at $500 for the first 6 months, $1,000 for 2
Federal Reserve Bank of St. Louis


years, $800 for 6 months, and were graded down to as little as $100
toward the end. This arrangement was based upon a war contract that
was expected to reach its peak in the third year and then decline. By this
device, technical delinquencies in payment have been markedly reduced.
Another device that has been employed for several years is the so-called
recapture clause, under which a borrowing enterprise that has earned
net profits in the preceding year pays to the Foundation 15, 20, or 25
per cent of those profits, in addition to the current payments. The pay­
ments made on recapture apply to the notes of the most distant maturi­
ties, in reverse order, thus shortening the total time period and saving
interest to the borrower in the end. Under conditions of wartime pros­
perity, several clients have abbreviated their time of indebtedness by a
year or more, and one has recaptured from its profits the notes of the
last five contract years.
By these adaptive and flexible devices, designed to correspond with
the small-business fluctuations, the Foundation has aided the financial
position of its client concerns, has safeguarded the community fund from
loss, and has insured its own ultimate profits. The approach has been an
individual one in the case of each particular client.

Attendant Services and Business Aids
Finally, .the Foundation long ago abandoned the usual aloofness of the
creditor position in favor of a close concern with the inner affairs of
some, at least, of its client enterprises. Its attitude in these cases has
amounted to that of a partnership. A certain degree of contact with
clients was provided for in the charter of the institution8 and this rela­
tionship, developing with time, has taken the form of business services
of an informal and intimate type.
Formal marketing surveys or other economic aids have not been found
necessary, such studies probably being more appropriate to larger enter­
prises than to the smaller ones. Technological services, though desirable,
have not been within the organization’s sphere. But the small businesses
at times have needed specific aids on an individual basis. In the earlier
stages, some aids were disciplinary in character: an insistence by the
Foundation upon better accounting practices, a demand for improve­
ments and even changes in management or submanagement, and in one
case a threat of grand jury action if a financial control that had crept
into a company was not eliminated. More difficulties of this sort arose
in connection with brought-in concerns than with any other type, for
such plants were sometimes affiliated with distant interests that tended to
regard the Foundation as a subsidizing agency.
The prevailing type of service, however, may be termed personal. The
Foundation has helped some of its client companies to make contact with
8 See Appendix A, page 63. Under this provision, Mr. Harrison, president of the
Foundation, was a director of 10 client companies in 1944. Mr. Ayres, secretary-treasurer
of the Foundation, was secretary of five companies.
Federal Reserve Bank of St. Louis


private capital, to locate needed sales managers and other key fnen, and
to find better quarters. It has served as business counselor on many
occasions, has represented its clients in conferences with trade creditors,
has worked out agreements with banks, and has obtained on its own
credit materials needed for manufacturing purposes. In one case, the
organization investigated and disproved a libel that was damaging a
company’s standing. Not all the client concerns have required such
services, and accordingly some establishments have not received them,
but in other cases the relationship, while advisory, has been extremely
close. To the small and detached local enterprises, the advice and sup­
port of an organization including leading businessmen of the community
have been of no small advantage.
The general effects of the Foundation’s constructive interest in its
financial clients have been twofold: to reduce the risk of its own accounts,
and to strengthen the employment-creating potentialities of the enter­
prises within the community. The private business motive and the
quasi-public motive have been found to coincide. Not only has capital
been made institutionally and locally available to the small and inde­
pendent enterprises of Louisville, but the methods of investment and
the services that accompanied the investment also have been adapted to
their individual needs.
Federal Reserve Bank of St. Louis


The Background of Local Depression
In 1916, Louisville, then a city of about 225,000 population, was in a
serious situation. The community was not participating in the productive
activity of the first world war and none of its leading industries—
distilling, tobacco processing, and woodworking—was in good condition.
The town’s labor force was leaving to find employment along the Great
Lakes. Homes were becoming vacant, trade was ebbing, and some stores
along the main streets were boarded up.
The Louisville Board of Trade held a series of conferences of business
leaders. Generations of family residence had bred in these leaders a strong
sense of community trusteeship. The conferees became determined to
take action to save the town. Recognizing the primary influence of
industrial employment and profits upon other phases of the local economy,
they decided to concentrate their efforts upon a development of new and
diversified manufacturing in the Louisville area.
The community, which previously had been prosperous, did not lack
capital. Also, Louisville was a center of eight railroads, had river trans*
portation, a good power supply, and cheap land for factory sites. The
tradition of individual enterprise and of resident ownership of manu­
factures was strong, so that these leaders thought almost automatically in
terms of the development of industries of the independent local order.
How to stimulate the desired expansion became the problem.
Community funds were being formed in other cities at this time, for
purposes of advertising community advantages, of subsidizing industries,
and in some cases of combating unionism. The Louisville leaders readily
conceived of raising a fund, but none of these purposes appealed to them.
They were looking for something unique—some advantage to the inde-
Federal Reserve Bank of St. Louis


pendent manufacturer that would give their area a lasting locational
advantage in competition with other areas.
Who among the conferees originally suggested a fund that would be
used for the purpose of supplying temporary capital to manufacturing
enterprises is a matter of uncertainty today. Many minds obviously
contributed. At all events, it was suggested that if Louisville, as a com­
munity, could provide a systematic and organized capital source for the
small industrialist, the desired development might result; and this
thought gained ground. Always in the past the independent enterpriser
had had to spend much of his time seeking for personal capital to back
his inventions or ideas. Merely to simplify this search, the Louisville
leaders considered, would attract industries to their community.
It was decided, accordingly, to solicit the public to create a “Million
Dollar Factory Fund.” This fund was to be placed under the control of
a corporation to be called the Louisville Industrial Foundation.

Proposed Standards of the Foundation
The founders of the movement proceeded to plan the standards of the
Foundation. Upon one point they were agreed: the fund, if raised, should
be administered along business lines. Those leaders had no patience with
loose practices in investment or with any form of industrial subsidization.
They settled upon a few broad principles, which later were embodied
in the literature of the fund campaign and in the articles of incorporation
of the Foundation.
First, the fund was to be raised not only from the business public but
from the general public as well. It was reasoned that if the town revived
and grew, not only the business community but the entire residential

population would benefit.
Second, the capital to be supplied to the manufacturing enterprises
should be medium-term temporary capital. This idea was suggested by
bankers, who saw the need of establishing a type of financial service
that their own institutions at the time did not supply. But there was
also another root to this suggestion: the businessmen of Louisville knew
the independent manufacturer to be typically an individualist who
wanted above all to preserve the freedom of his business, and who viewed
equity sale, on other than a temporary basis, as a threat to his prerogative
of control. The medium-term investment, retirable in instalments, was
calculated not only to furnish capital but also to preserve the inde­
pendence of the manufacturer who owned his enterprise.
Third, such an investment fund would be a revolving fund. The
principal of each investment would be gradually amortized, and interest
would be paid. Thus, the original fund could be reinvested again and
again, would support itself without depleting capital funds, and might
even pay profits. One partly fallacious idea that lingers in Louisville
today apparently dates from these discussions; namely, that if ownership
shares were bought outright, the fund would lack the revolving character,
Federal Reserve Bank of St. Louis


because the equities of small concerns usually would not be resalable and
thus the fund would merely become tied up in a million dollars’ worth
of “freezings.” (This belief overlooked the fact that common stocks or
partnership shares may be made serially retirable.) Two methods were per­
ceived by which the earnings of the industries would enable the fund to
revolve: either capital loans might be made on a term-payment basis, or
preferred stock, which was popular at the time, might be purchased
upon a serial retirement plan. The Louisville leaders of 1916 preferred
the latter course, and the Foundation appears to have been set up
primarily to purchase preferred stock, though any type of temporary
investment was permitted.
Fourth, the investments were to be made on a selective basis. Some
hazards would be taken, and some losses would undoubtedly arise, in
accordance with the spirit of venture enterprise. But the risk position
was to be restrained, while all invasion of the province of the banks or
other investment institutions was to be avoided; the restricted yet supple­
mental position of the proposed fund was defined from the start.
Fifth, in formulating the administrative agency, the conferees decided
that the proposed corporation should have a directorate of 15 leading
businessmen, of whom 10 must vote affirmatively for the making of any
investment. The contributors to the fund would elect the directors, but ,
the Board of Trade would nominate them.9 Thus, the business standards
of investment would be perpetuated and the fund would remain in
conservative hands.
Sixth, no single investment might amount to more than one third of
the total capitalization of the client concern. Such capitalization was to
exclude any valuation of copyrights, going-concern value, or other
intangibles. This provision was made in order to obviate the danger
that the Foundation might exert the control of a holding company over
its client concerns, also to keep the fund from being called upon to
supply the majority of capital for a completely new venture.
Seventh, not more than 10 per cent of the capital of the Foundation
might be invested in any single concern. Since a million-dollar fund was
contemplated, the maximum investment would be $100,000.10 The
purpose of this provision was to prevent an undue absorption of the
fund by one or two large investments and to diversify the portfolio of risks.
Eighth, the Foundation would retain the right to be informed regarding
the business affairs of client companies and also to appoint one of its
own officials or directors to the directorate of a client concern.
9 The Board of Trade was to name three tickets of directors, in order that the stock­
holders might have a choice. The stockholders also were entitled to make nominations.
In fixing a one-year term for the board of directors, the planners made a mistake that
was later revised. Since 1919, each director serves for three years, and one-third of the
board is elected annually. This has proved to be a very workable arrangement.
10 Some difficulty later arose over this provision, for the fund proved partly uncol­
lectible, amounting in 1921 to only $843,205. Meanwhile some loans of $100,000 had
been made. The Foundation, by advice of the attorney who drafted the. charter, has
continued to regard $100,000 as the maximum investment, interpreting the word “cap­
ital” to mean authorized rather than paid-in capital.
Federal Reserve Bank of St. Louis


Finally, the compromise course, midway between venture and safety,
between incautious squandering and overcautious hoarding of the fund,
was further embodied in several matters of detail that were written
into the charter.
Whether or not the community fund would earn enough profits from
its investments to be able to pay dividends to its contributors was a
subject of considerable difference of opinion. Some of the conferees
confidently expected that dividends would be paid. Others, including
bankers in the group, recognized that, though profits might be earned
in certain cases, the type of investment that was contemplated presented
a considerable prospect of loss. It was decided, however, to incorporate
for technical purposes of profit. Doubt existed as to whether a community
fund for investment purposes could be legally incorporated on a non­
profit basis. Some leaders doubted, moreover, whether a million-dollar
fund could be raised from the public if dividends were not at least
theoretically in prospect; and this practical desire for a successful fund
drive apparently went far to determine the decision.
Such were the general standards set up by the business leaders of
Louisville in advance of the drive for funds. In experience, one or two of
these standards were to become somewhat modified. But the decisions,
on the whole, proved wise, and the charter has not required amendment.

Raising the Community Fund
Louisville’s drive for its “Million-Dollar Factory Fund” was typical of
the high-pressure drives of the period. Under the direction of R. E.
Hughes, a vigorous young promoter with banking experience, drive
teams were organized by industry groups, by subgroups and by areas, to
the end that no business establishment and no individual in Louisville
might remain uncanvassed. The salesmen were trained and assigned to
work in pairs. Employers agreed to canvass their employees.
Enthusiastically worded pamphlets were distributed and, with speeches
and newspaper publicity, aroused public sentiment. One pamphlet gave
figures purporting to show that if 10,000 additional wage earners were
employed in the town, the result would be $9,000,000 in additional annual
income of local business and trade. The appeal was at once to town
patriotism and the pocketbook. “Good business judgment,” said this
pamphlet, “is the still, small voice that bids you act, for your city and
for yourself.”
The campaign was set for nine days beginning July 17, 1916. On its
eve, the teams met at a rally and were given a “pep” leaflet and a
pamphlet marked “confidential.” The leaflet began, “COMPATRIOTS!
Louisville’s psychic hour booms! The tragic question is: Charge or
Retreat? Our future chance is a bid for action!”
The confidential pamphlet gave some instructions in high-pressure
salesmanship and dealt as follows with the matter of prospective profits:
Federal Reserve Bank of St. Louis


Remember, you are not asking anybody to give anything. You
represent a clean-cut business proposition in which citizens are invited
to subscribe for shares of stock.
If you find someone who won’t buy because he does not believe
the capital will be kept intact or pay dividends, appeal to civic pride
and get a subscription, although considered a donation.
Lay emphasis upon the responsibility of the men who will manage
' the Foundation.
In its technical aspects, the drive was a campaign to obtain signatures
upon pledge notes. The notes were promises to buy stock in the
Foundation, at $100 a share, and would become valid only if a total of
one million dollars was pledged. If this goal was reached, the notes
would become payable in semiannual instalments, over a five-year
period. During the collection period, the subscriber would receive an
interim certificate, privileged for voting. The final shares would be
received upon completion of payment.
The drive moved rapidly, and on the ninth day the million-dollar goal
was reached and passed, a total of $1,024,800 being pledged. For a com­
munity of the size of Louisville, this was a very large amount, averaging
about $4 a person for the entire population. Subscribers numbered 3,118;
subscriptions ranged from $100 to $25,000. Table 3 shows the types of
subscriber that contributed the greater part of the fund.
The largest single subscribers were the Louisville Gas and Electric
Company and the Louisville Railway Company. Each contributed
$25,000. Thirty-six pledges of $5,000 to $15,000 were received, 17 from
department stores and other large business enterprises and 19 from
banks. The banks subscribed a total of $60,500, for the most part in
$5,000 lots.11 Of the merchants, 88 wholesalers and 583 retailers sub­
scribed a total of $190,700. In the industrial group, 190 manufacturing
concerns subscribed, evidently in the belief that manufacturing would
benefit as a whole. Attorneys, doctors, dentists, and other professional
men made moderate subscriptions, and barbers, florists, pawnbrokers,
and other very small business concerns also subscribed.
The list, however, also included many individuals—clerks, salesmen,
office secretaries, and other employed workers, as well as town residents,
37 of whom were classed as “widows.” According to one classification,
2,185 miscellaneous individuals pledged a total of $421,200. By another
classification, 2,042 subscribers each purchased a single $100 share.
This indiscriminate method of fund raising developed into a long­
standing problem for the Foundation. In later years, some of these small
subscribers were to visit the offices of the community fund and ask for
their money back, saying that the salesmen had promised them dividends
or that their employers had brought pressure upon them. In the heat of
the campaign, some unwise promises were undoubtedly made and some
extreme things done. The overselling process is recognized today in
11 Bank subscriptions to stock became illegal at a later date.
Federal Reserve Bank of St. Louis



Number of

Business Classification





Banks .............................................................................................
Brick, tile, and cement companies...............................................
Building contractors.......................................................
Clerical workers..............................................................................


Clothing manufacturers..................................................................
Department stores...........................................................................
Insurance companies and agents........................................... .... .
Liquor and beer manufacturers...................................................



Lumber dealers . ...........................................................................
Lumber manufacturers...................................................................
Managers of companies...................................................................
Paint, varnish, and oil manufacturers...........................................
Physicians and surgeons................................................................



Presidents of corporations............................................................... 123
Printers and lithographers....................................................... • 52
Real estate companies and agents............................................... 101
Retail grocers....................................................................................... 118
Retail liquor and wine dealers....................................................


Secretaries and treasurers of corporations....................................
Vice presidents of corporations...................................................
Wholesale drygoods companies.......................................................
Wholesale hardware companies...........................................



Total Principal Subscribers................................................... 1,463
Smaller Subscribers, business and individual....................... 1,655

$ 597,800

TOTAL............................................................................. 3,118


Louisville as having been a mistake, because it tended to damage the
later public relations of the Foundation. But there was also a more
concrete consequence. About $200,000 of the individual subscriptions
proved partly or wholly uncollectible, so that for several years the size
of the capital fund was actually in doubt. Both results could have been
avoided by limiting the solicitation of funds to those individuals and
business concerns that were clearly in line to benefit from an increased
industrial pay roll in the community.

Incorporation of the Foundation
The capital fund having been pledged, the articles of incorporation were
filed and the Louisville Industrial Foundation came into legal existence
on September 7, 1916. Its authorized capital was set at $1,100,000. The
Federal Reserve Bank of St. Louis


election of the first board of directors soon followed.12 Offices were
established in the Board of Trade building and the Foundation was
ready to operate.
12 Lewis R. Atwood was elected the Foundation’s first president. Tampton Aubuchon
was appointed secretary-manager. The original board of directors was made up as
Lewis R. Atwood, paint and varnish manufacturer; John W. Barr, Jr., bank presi­
dent; W. E. Caldwell, machinery manufacturer; V. H. Engelhard, coffee manufacturer;
William Heyburn, hardware jobber; R. E. Hughes, bank executive; Charles F. Huhlein,
implement manufacturer; Percy H. Johnston, bank president; Fred Levy, retail mer­
chant; Donald McDonald, president of gas and electric company; Caldwell Norton, real
estate broker; C. M. Phillips, secretary of title company; Fred M. Sackett, president of
coal mining company; Embry L. Swearingen, bank president; Thomas Floyd Smith,
president of paper company.
Federal Reserve Bank of St. Louis

I 19 J

The Four Major Periods
The development of the Foundation may be traced through four distinct
and contrasting periods: (1) the experimental period, 1917-22; (2) the
bull-market, 1923-29; (3) the depression, 1930-37; and (4) the years of
recovery and war, 1938 to the present. The division into periods is based
upon the fact that the directors’ investment policies and practices altered
significantly at the indicated times, as a result not only of the business
cycle—with which the changes roughly corresponded—but of the cumu­
lative trial-and-error experience of the Foundation itself.
The experimental period was characterized by the greatest assumption
of hazards, including the founding of new and, in some cases, • unsound
industrial ventures. The bull-market years saw an increase in total investments above those in the first period, with a marked advance in
soundness of risk selection and in the development of diversified and
heavy industries. Losses, however, resulted in this second period from
certain ventures of the first. The depression brought a dearth of new
undertakings; during the early 1930’s the Foundation was devoted
primarily to supporting and salvaging its existing clients. The fourth
period began with a revival of investment, primarily for the expansion
of previously established enterprises, and culminated in a considerable
amount of financing in aid of war production. During the entire time,
gradual advances were taking place in the Foundation’s techniques of
risk appraisal, in its adoption of flexible and adaptive policies and terms,
and in its rendition of service aids to client concerns.
Federal Reserve Bank of St. Louis


The Experimental Period, 1917-21
At the beginning of operations, various difficulties had to be overcome.
First, the capital fund came in slowly. By the end of 1916, only $100,907
of the pledged amount had been paid in; during 1917, only $179,729
more was received. The second full year, 1918, however, saw the total
of paid-in capital mount to $455,909, and the time of stringency was
passed. The fund totaled $620,374 at the end of 1919. But the additional
collections during the following two years amounted to less than
$100,000, and at the end of 1921, uncollectible pledges of more than
$200,000 were written off,13 principally those of small subscribers. Since
operating deficits also had occurred, the total assets at this time amounted
to only $817,634 instead of the anticipated $1,024,800.
A second difficulty arose from the natural expectation of the stock­
holders and the public that results of the fund would be immediately
forthcoming. Actually, advertising the existence of the community fund
and of the other industrial advantages of Louisville, considering the
large number of queries and applications that began to flow in, and
selecting the important initial investment, all involved considerable
preliminary work. But the pressure for action was hard to withstand,
and it is probable that at least some of the early instances of ill-considered
investment were caused by the uneasy knowledge that the public was
saying, “They’ve got a million-dollar fund—why don’t they do some­
thing with it?’’
The third major difficulty was the Foundation’s early involvement in
a labor dispute. Its initial transaction, made in June 1917, was a loan
of $50,000 to an old-established garment factory that needed working
capital. Just after the loan was made, a strike to unionize this plant
occurred. A Foundation director, himself a textile manufacturer, plunged
into the argument on the employer’s side, and the developmental agency
found itself attacked in labor circles as being a concealed open-shop fund.
This unanticipated complication led to conferences between the
directors and the labor leaders and to the adoption of a resolution that
might well have been included in the charter in the first place. The
resolution disclaimed any involvement of the Foundation in labor dis­
putes, deprecated strike action in time of war, and favored the peaceful
arbitration of grievances. All subsequent contracts of the Foundation with
client enterprises have in consequence contained the following protective

It is mutually agreed and understood that said party of the second
part (the Foundation) shall not be a party in determining or adjust­
ing relations or disputes between said party of the first part (the
manufacturing concern) and its employees, or their representatives.
Additional payments continued to come in gradually for several years after 1921,
until, finally, the paid-in capital amounted to $875,759.
Federal Reserve Bank of St. Louis


The fourth important difficulty was, perhaps, the most serious of all.
It involved the formulation of a policy that would apply to cases of
joint investment in the same enterprise by the Foundation and by its
directors or their associates and friends. The men who were chosen as
trustees of the community fund were likely, in their business capacities,
to be more or less closely associated with other local men of means. To
have ruled out all personal investment by the friends of directors in
enterprises partly capitalized from the community fund would have
seriously reduced the desired flow of local capital into local enterprise;
yet the director who advocated a Foundation investment in an enterprise
in which an associate was interested was likely to be criticized, rightly or
wrongly, for manipulating the community fund for private purposes.
The greatest protection in this dilemma proved to be the charter provision
that required an affirmative vote of 10 directors, or two thirds of the
board, in order to ratify an investment. Also, it became established as an
ethical tradition in the board that any interest of a director in a given
transaction would be frankly declared and that a director whose vote
might be open to criticism would refrain from voting on the particular
matter. Subsequent experience of loss from investments that were sup­
posedly backed by influential men further showed the practical wisdom
of impartial lending standards.
In spite of these four types of difficulty—the slowness of capital pay­
ments, the public pressure to perform, the early strike involvement, and
the troublesome question of influence—this first period brought a
remarkable amount of new industrial activity and venture to previously
somnolent Louisville. The widespread interest aroused by the forming of
the fund, and the work of the Foundation as an industrial bureau, brought
into the community 34 manufacturing enterprises, with total initial
capital of $8,326,900, that required no financing. In addition, the Founda­
tion financed 14 industrial enterprises and one civic situation, investing a
total amount of $803,869, all of which was new money. These investments
are summarized in table 4 and are listed in table 5 in their chronological
order, together with the subsequent history of each account.
Of the 14 manufacturing enterprises that drew $728,869 in initial
capital from the community fund in this period, 11 were new to Louis­
ville, including six completely new ventures and five enterprises brought
in from other points. In these 11 establishments the Foundation made
initial investments of $513,869, or an average of $46,715 to the enter­
prise. Three additional investments, amounting to $75,000, also were
made soon afterward in two of the same enterprises.
The six completely new ventures were set up to manufacture plywood,
a newly invented business machine, school and other furniture, and an
automobile body to go with a well-known make of car; one was to supply
cold-storage service. Three of these new ventures—two that were based
on products of limited sales appeal and one that had an inexperienced
management—were to liquidate after a few years. Of the five brought-in
concerns, one (the future Reynolds Metals Company) manufactured at
Federal Reserve Bank of St. Louis




TOTAL INVESTMENTS......................................................................... 18
Initial investments in new undertakings.......................................... 15
Completely new enterprises............................................................. 6
Brought-in enterprises...................................................................... 5
Recently founded enterprise...............................................................1
Old-established enterprises............................................................. 2
Civic situation.................................................................................... 1
Additional investments in previous undertakings............................. 3
Completely new enterprises a........................................................... 1
Brought-in enterprise a..................................................................... 2

Refinancing of current accounts.......................................................—
Accrued interest written off........................................................................
Capital loss written off................................................... '.................... —
TOTAL ASSETS, conclusion of period...............................................


----- n—

* At time of initial investment.

first an abrasive cleaning powder, later a container for gunpowder, and,
later still, cigarette foil, aluminum, and many other products. Another
made automobile parts, another dairy products; the latter developed a
new industry in Louisville. One produced a recently invented variety of
office desk, and the fifth was a branch oil refinery that is today of con­
siderable size. The desk concern liquidated after eight years, but four
of these enterprises became firmly established.
Louisville, of course, gained as a community even from those invest­
ments that were later to result in liquidations, absorptions, and losses
to the Foundation and to private investors. The companies that did not
survive created employment while they lasted, which was generally
several years; also, the factory buildings erected for these enterprises
from Foundation funds in all cases proved available for new manufac­
turing occupants and are used as factories today. Thus the four items of
capital loss from industrial loans in the record of( the community fund
are rather to be regarded as involuntary subsidies, resulting in permanent
expansion of Louisville’s industrial facilities, than as outright losses.
The Foundation made three loans, totaling $115,000, to already
established local industries. One was the garment factory that offered
an initial difficulty in the form of a labor strike. The second was a
cottonseed-oil plant affiliated with outside interests; the controlling
group later encountered trouble, and the Louisville plant was taken
over by a large national concern, which operates it today. The third was
a young enterprise, locally owned, that was beginning to make electric
tools and appliances and was ripe for its first expansion.
Federal Reserve Bank of St. Louis



Type of Production

of Enterprise

Year Amount

[2 4 ]

Wood products
Cigarette foil
Automobile parts

Completely new



Petroleum refining




Cottonseed products
Dairy products
Business equipment

Old-established c
Completely new



School furniture
Wood products

Completely new d
Completely new e



(Teachers’ Salaries)
Patent desks
Cold-storage plant
Automobile bodies
Electrical devices

(Board of Education)
Brought-in f
Completely new 8
Completely new h
Recently founded



Federal Reserve Bank of St. Louis


Year Amount


Year Amount

Written Off
Year Amount







Capital Loss
Year Amount












• 1924




$ 19,500c

___ ________








a Except as otherwise noted, enterprises were in operation under original ownership in 1944.
b Enterprise remained in operation.
c Absorbed into multiestablishment company, 1925; remained in operation,
d Liquidated, 1930.
e Liquidated, 1926.
f Liquidated, 1928.
g Absorbed into multiestablishment company, 1930; remained in operation,
h Liquidated, 1926.


An emergency civic service also was performed. Just before Christmas
1920, the local Board of Education found itself without funds to pay its
teachers’ salaries. Although the charter had omitted to provide for invest­
ments of a civic nature, the Foundation lent the Board of Education
$100,000 on a 30-day unsecured note at 2 per cent flat interest. No
stockholder objected, and the loan was duly repaid from tax moneys.
Thus, of the total amount of $803,869 invested from the community
fund in its initial six-year period, $703,869 went into manufacturing
concerns. The appraisals of risk were not always sound. Nevertheless,
at no later time was the community fund more experimentally and
venturesomely applied than it was in the years 1917-22.
In regard to the technic of investment, the preconceived ideas of the
directors toward the end of this period underwent a change. Of the 14
manufacturing investments, 5 were purchases of preferred stock yielding
7 per cent; 2 were loans on security of preferred stock; 1, a purchase of
bonds; 1, a loan on security of bonds; and 3 were loans on endorsed
notes. But as some of the enterprises began to falter, the possibility of
their liquidation called attention to the weakness of the preferred-stock
position. In 1921, two loans were made on first-mortgage collateral of
land, buildings, and equipment; thenceforth, the first-mortgage term
loan was to become the standard deal. (The largest instance of loss in
the record of the Foundation, that of $99,945 on a single $100,000
transaction, developed from a preferred-stock investment.)
In the latter part of the experimental period, a change in manage­
ment occurred. The first secretary-manager, Mr. Aubuchon, resigned at
the end of 1919. He was succeeded in March 1920 by Frank B. Ayres,
who still, after 24 years, is secretary-treasurer of the Foundation. Mr. Ayres
had been in railroad developmental work, first with the Missouri Pacific,
then with the Southern Railway System. He was thoroughly familiar
with the Foundation, since he had participated in the initial planning
and also, in his railroad connection, had been instrumental in bringing
the infant Reynolds concern to Louisville and placing it in contact with
the development services of the Foundation.
When Mr. Ayres assumed his new duties, the investments that were to
occupy the remainder of 1920 and 1921 were already under consideration.
These were carried through but took the form of secured loans. At the
end of 1921 the directors wrote off about $200,000 in uncollectible
subscriptions, and during 1922 they authorized no further investments
but reconsidered the entire situation of the organization. Mr. Ayres
placed the industrial bureau upon a systematic basis, and in 1921 and
1922 the Foundation brought in, without any use of its own capital, 10
manufacturing establishments, having a total capital of $3,552,500.

The Bull-Market Period, 1923-29
The bull-market period of the Foundation’s history began in 1923 and
extended through 1929. With the beginning of this period, the Foundation
Federal Reserve Bank of St. Louis


made a new start. Although speculative excesses characterized those years
for the nation as a whole, the policies of the Foundation were put on an
increasingly sound basis. More rigid standards of acceptance were
adopted, and a greater emphasis was placed upon the development of
heavier industry, upon the creation of employment for skilled labor,
and, especially, upon the diversification of the local manufacturing
structure. A beginning was made in the adaptation of loan-repayment
schedules to the debt-paying ability of the borrowers. This change
included the abandonment of annual or semiannual payments in favor of
monthly payments, since the longer intervals had proved to be a cause
of defaults. Finally, the investments were almost exclusively term loans
on the basis of first-mortgage security.
The transactions of this period are summarized in table 6. In dollar
volume, the Foundation’s activity exceeded that of the first period. The
number of its new manufacturing undertakings, namely 15, was larger
by 1, and the average amount of initial capital was slightly larger,
namely $48,315. All investments amounted to $957,611, and investments
of new money totaled $842,228. Five new industrial beginnings were
financed, 6 industries were brought in from other points, and 4 previously
existing local industries were aided, all by capital loans. In the 15 new
accounts, the Foundation invested $724,728 of initial money.
The completely new ventures, listed in table 7, were a toy-balloon
factory, a hosiery mill, an independent oil refinery, a metal-stamping
plant, and a macaroni factory. The six brought-in enterprises were a
manufacturer of iron accessories for railroads, a shoelace factory, a
manufacturer of water heaters for dwellings, a metal-enameling plant,
and two companies that helped to make Louisville a bakery-products
center. The Foundation also loaned $151,000 in new money for the
expansion of four previously established local enterprises: one that built
pipe organs for churches and motion-picture houses and was over­
burdened with work at the time, a fabricator of bridge iron and struc­
tural steel, a maker of bedsprings and spring mattresses, and a former
brewery affiliate that had been taken over by new management and was
beginning to make machinery for dehydration purposes.
While four of the 15 undertakings of this period were ultimately to
liquidate, only one of the four cases—that of the hosiery plant, which
lasted but three years—could be regarded as an instance of dubious
appraisal by the Foundation. The rise in the world rubber price, which
caused the toy-balloon factory to shut down in 1927, could hardly have
been foreseen; and liquidation of the railroad-iron and pipe-organ con­
cerns did not occur until 1942 and 1944 respectively. No capital loss to
the Foundation resulted from any of these 15 investments, partly because
the credits were well secured but even more because the appraisals of
investment risk had generally been sound in advance. Three criteria
were being applied before a financial undertaking was made.
First, in all cases excepting that of the hosiery plant, the managements
Federal Reserve Bank of St. Louis






TOTAL INVESTMENTS.................................................................. 22
Initial investments in new undertakings........................................ 15
Completely new enterprises.......................................................
Brought-in enterprises...............................................................
Recently founded enterprise.......................................................
Old-established enterprises.......................................................
Additional investments in previous undertakings........................
Completely new enterprises a...................................................
Brought-in enterprise a...............................................................
Recently founded enterprise a...................................................
Refinancing of current accounts....................................................
Completely new enterprises a.......................................................
Recently founded enterprise a...................................................
Accrued interest written off......................................................................
Capital losses written off......................................................................
Completely new enterprise a.......................................................
Brought-in enterprise a..............................................................


TOTAL ASSETS, conclusion of period...........................................



At time of initial investment.

were well qualified, not only in the technical work of production but
quite as importantly in knowledge of the market and in the art of
selling. Also, all these managers held some degree of ownership in their
businesses and were of the hard-working type, willing to make modest
withdrawals and undergo other personal sacrifices for the sake of upbuild­
ing their enterprises.
Second, the list of products included none that was strictly new or
unfamiliar. The risk of financing inventions that required initial market
establishment had become evident from the experiences of the first period.
Most of the companies that were financed in the second period produced
quality variants of familiar products.
Third, in the financing of one-purpose concerns, care was taken to
make sure that the market prospects were reliable. In cases such as the
machinery-making and metal-working concerns, that sold durable goods
to a limited business market, the specific marketing contacts were closely
examined. In the case of nondurable products, such as those of the toy
balloon, shoelace, baking, and macaroni plants, the markets were of the
type that involved sales in small lots to a large number of consumers and
had a high factor of replacement sales. Some of the best results were
obtained from this type of sales situation.
Federal Reserve Bank of St. Louis



[2 8 ]

Type of Production

of Enterprise

Year Amount

Railroad metal
Drying machinery
Toy balloons

Brought-in b
Recently founded
Completely new c
Completely new d



Petroleum refining
Pipe organs

Completely new
Old-established e



Structural steel
Water heaters
Bakery products




Bakery products
Enameled metal

Brought-in f



Stamped metal

Completely new




Completely new



Year Amount

Year Amount


$ 3,500

















Written Off
Year Amount

Capital Loss
Year Amount

a Except as otherwise noted, enterprises were in operation under original ownership in 1944.
b Liquidated, 1942.
c Liquidated, 1927.
d Liquidated, 1927.
e In liquidation, 1944.
f Became independent of original controlling group, 1934; formed new company with metal-sundries company, 1935.
Federal Reserve Bank of St. Louis


Just as the Foundation’s experience was proving that the retirement
of its investments depended ultimately upon good management and
upon sales, so also it was becoming evident that intimacy of contact
with its client enterprises was essential to the safety of the community
fund. In the earlier years, the organization had been content to place a
member of its board of directors upon the directorate of a client company.
But this degree of representation failed to provide a sufficiently close
contact with the business situations; difficulties developed at times, as to
which the directors were not adequately informed. Mr. Ayres became
secretary of his first client company toward the end of this period, and
in other ways the Foundation began to take a greater interest in its client
enterprises and to lay the basis for its later and more constructive
policies of loan support.
But financial troubles were developing. Several of the earlier under­
takings had begun to falter as early as 1922. A summary of the first 19
manufacturing investments, made in December 1924, disclosed that seven
accounts, all dating back to the previous period, had become delinquent
in their principal payments. The Foundation felt itself committed to
support these ventures and continued to do so; additional loans, totaling
$117,500, were made in four cases in order to bolster previous invest­
ments. Three accounts were refinanced, for a total amount of $115,383.
Several informal time extensions were granted. Nevertheless, toward the
end of the bull-market period, two serious capital losses occurred. The
automobile-parts company in 1929 experienced a reorganization that
involved a write-off of $55,309 by the Foundation. A wood-products
enterprise liquidated, creating a further loss of $99,945. Because of these
losses and the various delinquencies in interest payments, the assets of
the institution showed a gain for the seven-year period of only $31,905,
amounting in 1929 to $884,354. However, more than 20 prosperous
undertakings were successfully repaying their capital loans, and the
industrial structure of the community had been lastingly enlarged and
improved. Industries that had been developed for Louisville without
financing during the bull-market years numbered 23 and had total
capital amounting to $6,530,000.

The Depression Period, 1930-37
The collapse of stock-market values in late 1929 and the ensuing business
depression were reflected in the Foundation’s operations. When the
depression began, the directors were in a conservative frame of mind.
The national crisis contributed to this attitude, and, in addition, losses
were incurred in 1930, on top of those of 1929. The school-furniture
concern failed, causing a write-off of $27,450, later reduced by recoveries
to $9,301. Almost simultaneously, the cold-storage enterprise faltered
and was absorbed by a large competitor; the Foundation foreclosed to
protect its investment of $77,383 and in the end wrote off a loss of
$44,466. Moreover, on November 17, 1930, the National Bank of Ken-
Federal Reserve Bank of St. Louis


tucky closed its doors; the Foundation, at the time, had a deposit of
$95,835 in this bank.14
These losses created a “hold everything” attitude on the part of the
board. There was little effort to pursue an investment policy counter to
the business cycle. Loans were indeed sought, but, in conformity with
the psychology of the period, few applications were held acceptable.
These businessmen felt themselves to be trustees of the comunity fund;
they were determined to bring that fund out of the depression intact.
The investments accordingly emphasized the preservation of existing
industry above the creation of new. Also, as is shown in table 8, the total
amount of Foundation financing was markedly reduced.
In contrast with the 15 undertakings of the first period and the 15 of
the second, only five additional situations were entered by the Foundation
during the eight years of the third period, and only $173,300, or an
average amount of $34,660, was invested in these undertakings. Table 9,
in which the new commitments are listed, shows that they included only
one completely new enterprise, a baking concern, and only one brought-in
industry, a small metal-sundries factory. The Foundation loaned $50,000
to modernize an old-established printing concern and made two new
investments, totaling $65,300, in recently established local industries of
the immature variety. These undeveloped enterprises were, respectively,
a building materials and wood-products concern. Both had been previ­
ously founded by personal proprietors, capitalized on the proverbial
shoestring, and nursed along by earnings to the point of potential
expansion. The experience of the Foundation was beginning to show
the favorable quality of this type of investment, which had superior
aspects of safety, involved quick creation of new employment, and
required only a minimum amount of capital.
Additional new money was needed during the depression by nine of
the previous client concerns. Some of them required more than one
supporting loan, so that 12 secondary loans were made, amounting to
$158,250. The refinancing of old accounts constituted the largest item
of investment; seven such refinancings totaled $225,848. In other words,
of a gross total of $557,398 invested during the eight-year period, $384,098,
almost 70 per cent, was devoted to the maintenance of existing industries
rather than to industrial expansion.
The capital losses of the institution during the depression were not
large. They were confined to the losses sustained in 1930, minus the
recoveries that later occurred. While several accounts dragged along,
14 In 1931 the depositors of the National Bank of Kentucky received two thirds of
their deposits, the Foundation recovering $64,210. The balance of $31,305 was written
down to $1 on the Foundation’s books. But in 1939, $9,584 was recovered, leaving a
nonbook asset of $21,721 that is still unrecovered. The United States Supreme Court
decided, on March 8, 1944, that stockholders of Banco Kentucky, the parent holding
company, were liable to the extent of $2.31 a share and for interest since 1936 on obli­
gations of the National Bank of Kentucky. Under this decision, the Foundation may
recover additional amounts.
Federal Reserve Bank of St. Louis





TOTAL INVESTMENTS....................................................................... _24
Initial investments in new undertakings...................................
Completely new enterprise.......................................................
Brought-in enterprise...................................................................
Recently founded enterprises...................................................
Old-established enterprise...........................................................
Additional investments in previous undertakings........................ 12
Completely new enterprises a..............................
Brought-in enterprises a...............................................................
Recently founded enterprises a................................................
Refinancing of current accounts...................................................
Completely new enterprise a.......................................................
Brought-in enterprises a............................................................
Recently founded enterprises a...................................................
Old-established enterprise...........................................................
Accrued interest written off..............................................................
Brought-in enterprise a..............................................................
Capital losses written off...................................................................
Completely new enterprises a...................................................
TOTAL ASSETS, conclusion of period............................................



At time of initial investment.

others paid interest and principal promptly, and no enterprise that was
supported by the Foundation was liquidated in this period after 1930.
Total assets of the institution in 1937 were $889,191, compared to
$884,354 at the end of 1929. Not only had the fund survived the
depression intact, but it had slightly increased in size, and had main­
tained its client enterprises as well. Also, by its contact and informational
work, the Foundation in this period was instrumental in bringing to
Louisville 11 manufacturing concerns, with $407,000 total capital.
The increased recognition accorded to the existing but small and
undeveloped enterprises during this period may be regarded as an
advance in standards of appraisal. Also, there were two additional develop­
ments in flexible financing. As the straight-line monthly payments
proved too rigid for some enterprises to bear, lower payments were
arranged for the earlier stages of the accounts, then graded upward, in
anticipation of an upswing. A director suggested to Mr. Ayres, in 1937,
that there should also be a means of increasing the Foundation’s income
above the fixed interest return when a client enterprise was earning
profits. This suggestion led to the requirement, in the loan contract, that,
in addition to the regular payments, a certain percentage of each previous
Federal Reserve Bank of St. Louis



Type of Production

of Enterprise

Year Amount

Metal sundries
Building materials
Wood products

Brought-in b
Recently founded
Recently founded





Dairy products
Completely new

Year Amount

$ 3,000


Year Amount






Except as otherwise noted, enterprises were in operation under original ownership in 1944.
b Merged with enameled-metal company, 1935.


[3 2 ]
Federal Reserve Bank of St. Louis

Written Off
Year Amount



Capital Loss
Year Amount



TOTAL INVESTMENTS....................................................................... 26
Initial investments in new undertakings.......................................
Completely new enterprise.......................................................
Brought-in enterprise............................................................................
Recently founded enterprises...................................................
Old-established enterprises.......................................................
Civic situation..............................................................................
Additional investments in previous undertakings........................ 11
Completely new enterprises a...................................................
Brought-in enterprises a...............................................................
Old-established enterprises a.....................................................
Refinancing of current accounts................................................
Completely new enterprise a.......................................................
Brought-in enterprises a...............................................................
Old-established enterprises a ;...................................................
Accrued interest written off...............................................................
Completely new enterprise a.......................................................
Recently founded enterprise a...................................................
Old-established enterprise a.......................................................
Brought-in enterprise a...............................................................
Capital losses written off.................................................................. —
TOTAL ASSETS, conclusion of period...........................................



At time of initial investment.

year’s net profits be paid on account, to be applied to the retirement of
the mortgage instalments of the most distant maturities. This recapture
clause has the merit of increasing the liquidity of the fund, but it also
operates to diminish the duration of debts and, to that extent, reduces
the Foundation’s income from interest payments.
Another important development of the period was the final expansion
in the Foundation’s personnel. The president of the organization had
always been a businessman with broad connections in the financial,
industrial, and civic life of Louisville. The late John W. Barr, Jr., had
served for many years in this capacity, and J. C. Engelhard, long a
member of the executive committee, had also been president. In 1934
it was decided to retain a full-time president, and on January 20 of that
year the directors elected William B. Harrison in that capacity at the
conclusion of his term as mayor of Louisville. Mr. Harrison had taken a
leading part in many public and civic activities as well as in the business
field. On one occasion, he was a gubernatorial candidate in Kentucky.
Mr. Harrison today not only serves as president of the Louisville Indus-
Federal Reserve Bank of St. Louis



Type of Production

of Enterprise

Year Amount

Food specialties
Wood products

Recently founded



Work garments
Cotton rope

Recently founded



• 1940


Bakery products
Metal foil
Completely new
r—i Food specialties
Oc Packed poultry meat
Recently founded
(City-County Air Bd.)
L__l (New public airport)
Radio cabinets
Recently founded

Year Amount

$ 8,800


_____ b





Year Amount


a All enterprises were in operation under original ownership in 1944.
b Current working-capital account, on security of accounts receivable. Amount of credit varies.
Federal Reserve Bank of St. Louis

Written Off
Year Amount

Capital Loss
Year Amount

trial Foundation but as a director of several of its client companies and
of various civic organizations, and also he is chairman of the board of
one of Louisville’s largest wood-products manufacturing establishments.

The Recovery and War Period, 1938 to the Present
With the beginning of 1938, the Foundation’s activity revived. Attractive
pamphlets were published for the purpose of advertising Louisville and
its industrial advantages. In the years 1938 and 1939 alone, 156 per cent
as much investment was made, and as many new situations were entered,
as in the preceding eight years. That the financial activities of the
present period have been the greatest, on annual average, of any period
in the history of the community fund, is shown in table 10.
This increased rate of activity has since continued. The situations
entered since 1937 are listed in table 11. From January 1, 1938, to June
30, 1944, the Foundation made 11 new undertakings, in which it placed
•initial investments of $654,000.15 The average initial investment was
$58,636, the largest such average for any period. Additional new money
for previous situations amounted to $181,300, bringing the total invest­
ments of new money to $826,300. Though this financial activity exceeded
even that of the bull-market period, the emphasis of investment showed
a significant change.
No importations of industry were capitalized. Of the 11 financings
undertaken, only one was a newly established venture, and one was a
public or civic situation. Thus nine already-existing enterprises were
financed, and of these, five were old-established companies, to which the
Foundation loaned $341,000, in most cases to capitalize on expansion
for war work. The remaining four were existing but undeveloped enter­
prises; these were expanded by loans amounting to $154,000, and three
of them were made eligible for war contracts. By financing wartime
expansions, in the total amount of $495,000, the Foundation performed a
significant service and undoubtedly brought about a greater increase in
employment than it would have done by an equal investment in new
industries or importations at the time.
The mature enterprises were manufacturers of wood products, bakery
products, food products, and cotton cordage, and a printing concern.
The recently founded enterprises that were expanded produced work
garments and uniforms, wood products, and processed foods for military
use. One undeveloped and one new enterprise, a radio-cabinet and a
metal-foil concern, respectively, encountered material shortages and
engaged in war production while waiting for the supply situation to
become normal.
One of the most important investments of the Foundation, made in
1941, not only was instrumental in giving Louisville its second airport
io One current financing, unique in the Foundation’s record, is omitted from these
Federal Reserve Bank of St. Louis



of New Money Investments
of Interest
Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount



Experimental, 1917-22
Bull-Market, 1923-29
Depression, 1930-37
Recovery-and-War, 1938-44

$ 803,869


$ 803,869 15 $ 728,869 3
842,228 15
724,728 4
331,550 5
173,300 12
826,300 11
645,000 11
$2,803,947 46 $2,271,897 30

$ 75,000









a One current financing for working-capital purposes is omitted from these figures,accounting for the differences between this total and the
total of $3,849,045 reported by the Foundation on June 30, 1944.

[3 6 ]
Total Investments
In Completely
of New Money
New Enterprises


Experimental, 1917-22
Bull-Market, 1923-29
Depression, 1930-37
Recovery-and-War, 1938-44 11

$ 803,869




a Additional investment in previous undertaking,
b Omitting one current financing.
Federal Reserve Bank of St. Louis

In Brought-in




In Recently
In Old-established
In Civic


$ 15,000







but indirectly helped to bring in two large aircraft factories. The organiz­
ation acted in an interim capacity in the airport transaction, financing
the City-County Air Board to the purchase of the site of Standiford Field,
and enabling the site to be leased to the Civil Aeronautics Authority.
The Foundation’s investment of $100,000 in this airport transaction was
its second venture in a public or civic situation; the first had been the
financing of teachers’ salaries in 1920.
The industrial bureau also performed the important service of supply­
ing data that led to the establishment of important war industries in
Louisville. One of these war establishments more than doubled the total
capital value of the manufacturing enterprises whose presence in the
area previously had been ascribed to the informational work of the
War prosperity came to most of the manufacturing clients; seven
accounts were retired in full, some of them of many years’ standing.
The Foundation aided one of these retirements by writing off accrued
interest of $19,500. The propserity of the times also reduced the refinanc­
ings, which numbered only four and totaled but $155,100. No capital
losses were sustained. Two liquidations that occurred in 1942 and 1944,
those of the railroad-metal and pipe-organ concerns, resulted from
wartime conditions.
The rendition of business services by the Foundation to its client
enterprises attained full development in this period. These aids have
been of whatever nature a particular concern might require at a particular
time and have frequently been emergency aids. To find a more intimate
creditor-debtor relationship than that which exists between this quasi­
public corporation and many of its clients today would be difficult indeed.
Some manufacturing managers and proprietors in Louisville have found
the services of the organization almost indispensable.
Including investments of $567,698 in Louisville industries, the Founda­
tion’s assets totaled $983,659 on June 30, 1944. Fourteen accounts were
still current. A reserve of $90,000 had been established against possible
future losses. Liquid assets included $26,245 in cash and $373,100 in
securities, mainly United States Government bonds. Louisville’s com­
munity fund, formed in 1916, in 1944 was ready to meet the problems of
the approaching readjustment period on an expanded basis financially and
with the experience of 28 years as a guide to its administration.

Summary of the Investment Activities
The total investment history of the Foundation is summarized in tables
12 and 13. Table 12 shows the grand total of term investments as having
been $3,300,278, the amount of one current financing being omitted.
Of this total, the initial investments have amounted to $2,271,897, and
the additional investments in the same enterprises to $532,050, making
$2,603,947 of new money that was supplied from the community fund to
44 manufacturing concerns and $200,000 to two civic situations. Since
Federal Reserve Bank of St. Louis


eight of the manufacturing companies were liquidated and one was
merged with an associated concern, these manufacturing investments
have been instrumental in creating or maintaining 35 industrial estab­
lishments that are operating at the present time. To this number may be
added two large aircraft plants that were developed indirectly by the
airport financing, the 69 civilian factories to which industrial information
was supplied, and two additional wartime developments for which pre­
liminary studies were made.
Table 12 shows that the refinancing investments amounted to $496,331,
or 19.0 per cent of the total new money supplied to manufacturing
clients. Total capital losses in 28 years amounted to $209,021, or 8 per
cent of the total of new manufacturing capital provided. All losses were
incurred from undertakings of the first six years. Write-off of accrued
interest amounted to $57,895, or 2.1 per cent of the manufacturing
capital invested.
Table 13 shows that the Foundation has provided funds to 13 com­
pletely new, 12 brought-in, 8 recently founded, and 11 mature industrial
enterprises, and to 2 civic situations. Of the total new money invested,
whether initially or at a later period, 32.1 per cent has been invested
in manufacturing ventures that were completely new at the time the
Foundation undertook their financing; 25.3 per cent in brought-in
concerns; 10.6 per cent in recently founded enterprises; 25.0 per cent in
old-established enterprises, and 7.0 per cent in civic situations. In the
successive periods, the emphasis of investment has shifted gradually away
from the new and brought-in enterprises to the recently founded and
old-established types of concern. The proceeds from the investments
financed the work of the industrial bureau, paid the Foundation’s entire
costs, covered all losses, and increased the capital fund by $107,900.
Federal Reserve Bank of St. Louis



Varied Character of the Case Record
In order to illustrate the working methods of the Foundation and the
general strategy by which its capital was applied, a selection of several
cases is necessary. So much variation and contrast is found in the detailed
records of the 46 accounts that no single case may be regarded as typical.
This diversity among situations and experiences, far from being a matter
of accident, was intrinsic in the character of the Foundation and of the
supplemental financial function that it performed. The community fund
in the first place entered only those off-standard situations to which the
normal and customary standards of financing did not apply. Initial
variations further arose because the institution purposely was using its
capital in an attempt to diversify the manufacturing economy of Louis­
ville. But an even greater significance attaches to the sudden and often
incalculable changes that affected many of the accounts during the long
periods of loan retirement. These subsequent changes were the direct
result of the fact that the Foundation was making term loans in one of the
most flexible and fluctuant of all investment fields, that of small busi­
ness. Time after time, individual decisions of personal proprietors or
their keymen, changes in the character of the financial backing, and
above all the abrupt upward or downward variations of localized and
specialized markets, altered the status of accounts that had appeared to
be at least measurably standardized and calculable. It was not from any
theory, but from the dictates of its repeated experience with small busi­
ness, that the organization came to regard unforeseen change as probable
and to stand ready to adapt its financial and service policies to the
volatile nature of its investment field.
The cases that follow are selected primarily because they show the
Federal Reserve Bank of St. Louis


Foundation at work. Since the connection of the community agency with
its client enterprises was on the whole a temporary one, often occurring
at some turning point in the life of an enterprise, the following summaries
of investment experiences are not to be regarded as complete histories of
the enterprises themselves. What resulted in general from the access to
loan capital is, however, generally indicated.

Cleaning Powder, Tobacco Foil, Aluminum
F. B. Ayres, as industrial agent of the Southern Railway, in 1917 per­
formed the developmental feat of inducing R. S. Reynolds and his two
brothers, rising young industrialists, to move their original manufacturing
venture to Louisville. Mr. Ayres in doing this was impelled by his desire
to assist the new Foundation, the formation of which he had observed
with interest during the previous summer. Inasmuch as this incipient
Reynolds enterprise was destined to become the industrial backbone of
Louisville and to develop into the $91,000,000 Reynolds Metals Company
of the present day, the Foundation may be said to have obtained the
greatest of all its results indirectly, through the good offices of a friendly
railroad man, even before it had made its first loan. Records, however,
also show that in 1918 the Foundation further aided the expansion of
the growing young Reynolds corporation by a temporary capital loan.
The Reynolds brothers, nephews of R. J. Reynolds, the tobacco manu­
facturer, had gone into business independently, selecting Bristol, Ten­
nessee, as their first location. They established a plant and manufactured
a brand of household cleaning powder on a formula of their own. Their
venture prospered; a second plant was soon added; the product became
established against strong competition in the markets of 18 major cities.
Then, in December, 1916, both the Bristol plants were destroyed by fire
within a week’s time.
Instead of abandoning their business, the brothers promptly went in
search of a vacant factory. In St. Louis, while Conferring with a group
of railroad men, they met Mr. Ayres. The industrial agent first took them
to see some locations in East St. Louis, none of which proved suitable.
Then he suggested that they consider Louisville, where many plants were
vacant. He apprised them of the possibility of obtaining capital from
the newly formed Foundation and read from his notebook the description
of a certain building in Louisville that seemed to fit their needs. As a
result, the brothers left for Louisville that night. Ayres, following, escorted
them to the building in question, which they leased on January 4, 1917.
This building today is preserved by the Reynolds Metals Company as
an industrial landmark. In it the brothers resumed the manufacture of
the cleaning powder and earned enough profits to buy the structure,
paying for it in six months’ time. Then a second setback occurred. Under
a wartime order from Washington, the company was deprived of materials
and was forced to discontinue operations.
R. S. Reynolds met this second blow by inventing a paper drum for
Federal Reserve Bank of St. Louis


shipping gunpowder overseas. It was based upon the moisture-proof
container that had held the cleaning powder. The device cost 52 cents,
replaced an expensive metal container, and was bought by the Govern­
ment in large quantities. Plant expansion became necessary, and the
Foundation now served directly. A Louisville bank, in April 1918, ar­
ranged a term loan of $30,000 for enlargement of the Reynolds plant, the
loan actually being made by the Foundation. The increased earnings
enabled this loan to be retired in full in October 1918.
When the war contract terminated, the brothers turned to the manu­
facture of tobacco foil and, in 1919, incorporated the United States Foil
Company. This enterprise, too, soon needed expansion capital, and in
May 1920, the Foundation was again applied to, this time for a $100,000
temporary investment in preferred stock of the new corporation. The
deal was authorized and the contract was drawn by Mr. Ayres, who had
become the Foundation’s secretary-manager. But the Foundation at this
time was short of funds, had only $50,000 available, and while it was
trying to borrow or collect the additional amount R. S. Reynolds with­
drew the application.
This ended the Foundation’s association with the Reynolds enterprises.
How foil manufacture led to aluminum processing, bauxite production,
and to the operation of more than 40 war plants in various parts of the
United States during the second world war is well known. The Reynolds
Metals Company was incorporated in 1928 and in 1944, with its affiliates,
operated 9 major plants and several smaller establishments in the Louis­
ville area. The Foundation’s total profit from the Reynolds connection
was the $1,056 accruing from the loan of $30,000 in 1918. How much the
community fund would have profited had the same amount been
invested in equity shares of the young and expanding enterprise can
only be surmised. Speaking as guest of honor at a banquet in 1943, R. S.
Reynolds recognized Mr. Ayres in the audience and referred to him as
“the man who introduced me to opportunity—somewhat against my

Petroleum Refining
In 1918, a large oil company, then in its expansion period, chose Louis­
ville as the location for a new refinery. Since participation by Louisville
capital was requested, the Foundation undertook to interest local private
investors and also loaned $50,000 at 7 per cent, accepting as collateral
the note of the parent corporation, secured by like amount of outstanding
bonds. The contract for the loan, which was to be repaid in three and
one-half years, called for no retirement in the first year and a retirement
of $15,000 in the second, $15,000 in the third, and $20,000 in the first
half of the fourth year. The refinery was constructed and placed in
Under the terms of its loan contract, the Foundation was empowered
to receive an annual audit report of the borrowing company. When the
Federal Reserve Bank of St. Louis


first such audit report was due, in 1919, the parent corporation declined
to furnish it and retired the Foundation’s loan in full. The refinery is a
large one today.

Products of Cotton and Cottonseed
During the first World War, an old-established Louisville concern that
manufactured cottonseed oil and other cotton derivatives engaged in
experimental work on its own account in an endeavor to overcome the
shortage of cotton linters needed for the production of explosives. The
company also had the motive of providing off-season work for its
employees. A capital shortage resulted, and in 1918 the Foundation loaned
$50,000 on a 90-day note, secured by 7 per cent guaranteed first preferred
stock. The note was to be retired by annual payments of $5,000.
The first two annual payments had been made when the Tennessee
cotton interests with which the Louisville enterprise was affiliated went
into receivership. In the reorganization of these interests, the Louisville
plant was omitted. As a consequence, the enterprise became bankrupt
and was taken over by a national chain.
The debt to the Foundation was personally assumed by a Louisville
capitalist who had been instrumental in arranging the loan. This capi­
talist struggled for many years to repay what was purely a debt of honor
on his part. The directors of the Foundation as early as 1929 offered to
write off the portion of the debt that represented unpaid dividends on
the preferred stock; in the subsequent years, the directors granted
repeated extensions on the debtor’s voluntary note. Payments were made
little by little over a long period of time until at the end of 1940—22
years after the date of the original loan—the debt was finally retired.
This was an extraordinary instance of the integrity of an individual
who was determined that the community fund should not suffer loss.

School Equipment and Other Wood Products
An outstanding instance of persistent support of an undertaking began
in 1920 when a school-equipment salesman covering Southern territory
convinced the Foundation that school boards throughout the South,
which were buying school desks made in the North, would prefer to buy
from a Southern concern. The Foundation capitalized this sales idea by
providing a building costing $30,157, on a 7 per cent first mortgage.
Payment was scheduled to be made at the rate of $1,500 semiannually.
This venture encountered trouble. Sales costs were high, political work
was involved, established competition was strong, and the large payments
were difficult to meet. The first two notes were retired on time, but from
1921 to 1926 no further payments were made. When the company could
not pay an instalment in full, it did not pay at all, and this experience
convinced the Foundation that a monthly payment plan was sounder
than a plan requiring larger payments at less frequent intervals.
A partner took over the business in 1927, changed it to the manufacture
Federal Reserve Bank of St. Louis


of household refrigerators and other wood products, and made up part
of the delinquency. The Foundation invested $7,500 of new money in an
addition to the plant, refinanced the old balance of $22,500, and
arranged monthly payments. Moderate success resulted, and payments
were made regularly until 1929, when the partner became inactive and a
hired management was installed. The company again began to decline,
and in 1930 the enterprise was liquidated. The Foundation avoided
foreclosure by accepting a deed to the property for the unpaid debt of
$27,450; but it was left with an empty building on its hands, and for
some time was under the necessity of providing a watchman and paying
insurance premiums, so that an expense amounting to $3,045 was incurred.
The directors were on the verge of ordering this building pulled down
to save expenses, when, in 1932, an elderly craftsman who had previously
run a small woodworking plant came to the Foundation with a proposal
to start a new enterprise. This man was given the use of part of the
vacant building for seven months, rent free, and, with the aid of $2,000
provided by his son and an additional $2,000 borrowed from friends, he
proceeded to build up a new manufacturing venture. The Foundation
assisted by obtaining lumber, paint, and varnish for the new concern on
credit. The proprietor and his son did most of the work at first and soon
the little enterprise was producing low-priced kitchen cabinets and selling
them successfully.
Some $20,000 worth of idle machinery still remained in the building.
Seeing that the experiment was working out, the Foundation arranged
for the proprietor and his son to buy this equipment from the receivers
for $2,000 in common stock. This new equipment put the venture on its
feet. Production and sales began to expand, and within a year the
common stock was repurchased, the borrowed $2,000 was repaid, and in
1933 the Foundation agreed to sell the building to the partnership for
$15,300. This price was less by $9,301 than the book value of the property
and the Foundation wrote off a loss in that amount.
The payments under the purchase contract were only $50 a month for
the first two years, then rose to $85 a month. But in 1936, the company’s
«iles having continued to increase, the community agency loaned $11,750
for a further expansion of the plant and refinanced the unpaid balance
of the purchase account. As security, all common stock in the company
was deposited with the Foundation, which also held the voting rights.
Mr. Ayres became secretary of the company. The relationship thus
became extremely intimate.
Expansion proceeded, the old building was outgrown, and in 1937 the
Foundation invested an additional $5,000 for the purchase of an adjoin­
ing lot and the construction of a warehouse. The company in 1940
retired its debt to the Foundation in full. By that time, its capital had
increased, out of earnings, to $100,000. Shortly afterward a war contract
was obtained, and today this enterprise, of which the son is now in charge,
employs 120 workers and is on a stable basis.
Federal Reserve Bank of St. Louis


Furniture and Other Wood Products
A furniture-making enterprise was founded in 1920 by a prominent
retired capitalist who was interested in placing his son in the management
of a business. Primarily because they knew the father and relied upon
his support, the directors of the Foundation voted an investment of
$100,000, in 8 per cent first preferred stock of the new concern. A large
plant was built and elaborately equipped.
This venture encountered trouble from the outset. The young manager,
who lacked business experience, engaged a succession of hired assistants,
each of whom put in new equipment and carried out his own experi­
mental ideas. The investment from the community fund was to have
been retired at the rate of $10,000 annually, but no retirements were
made. The company was voluntarily liquidated in 1929, the plant passed
into the hands of mortgage creditors, and the Foundation took a total'
loss of $99,945, the largest in its history. The anticipated backing by the
father was not forthcoming. This experience convinced the directors of
the weakness of the equity position and the superiority of the firstmortgage loan under circumstances of liquidation, as well as of the vital
necessity of experienced management.

Commercial Cold-Storage and Ice Manufacture
In 1921, a long-established brewery was forced to discontinue its activity.
The company decided to turn its refrigeration plant into a commercial
cold-storage concern, since Louisville had only limited facilities of this
type at the time.
This venture required a considerable amount of capital. A Chicago
investment banking house undertook the financing and floated a $750,000
issue of first mortgage 6 per cent bonds. The company obtained $675,000
from this financing. The Foundation purchased $100,000 (face value) of
these bonds for $94,383.
The bonds were to be retired in annual payments over a 10-year period.
But the fixed charges resulting from the financing overburdened the
venture. The Chicago investment house in 1926 refinanced the bond issue,
and the Foundation accepted $83,500 worth of 6I/2 Per cent refinancing
bonds in lieu of the unretired $77,883 of the original issue. The enter­
prise declined and late in 1929, for the only time in its record, the
Foundation foreclosed to protect its interest, writing off a loss of $44,466.
Various private Louisville investors lost even more heavily.
The plant, which was well equipped and was fundamentally a good
business proposition, was taken over by a national concern and is
operated successfully as an affiliated enterprise at the present time.

Shoelace Manufacture
Two young Pittsburgh men, experienced jobbers of shoelaces, started
shoelace manufacturing in a small way in Providence, Rhode Island.
Federal Reserve Bank of St. Louis


Their experience indicated that a “hole in the market” existed for shoe­
laces of a higher quality and that these could be made for sale at the
standard price by the use of mechanical improvements. They had heard
of the Foundation and, coming to Louisville in 1924, they applied for a
capital loan. The directors were impressed by the fact that these partners
had saved a considerable amount from their previous earnings, as well as
by their evident knowledge of the shoelace trade. The partners, accord­
ingly, were financed for the construction of a new plant costing $62,728,
on first mortgage security at 6 per cent interest. No payments were
required for the first year.
This venture began to gain ground after a hard struggle. The partners
hired competent technical management and devoted themselves largely
to building sales, successfully invading a highly competitive market on the
principle of quality competition. Annual sales soon reached $250,000, but
most of the earnings were either applied to the mortgage debt or plowed
back into the purchase of new equipment and the expansion of the plant.
After six years, the Foundation aided the plowing-back process by
refinancing the debt, which had been lowered to $29,780, and reducing
the monthly payments. The next year, the Foundation invested $3,500
in new money for needed equipment, and two years later it granted an
extension of all remaining notes. The proprietors continued to work day
and night and to make only the minimum amount of withdrawals. Thus
aided, the business grew so rapidly that the company retired the Founda­
tion’s entire investment in 1939, five years in advance of the due date on
the refinancing.
This company has continued to prosper and expand. Its gross sales
in 1940 were $300,500, and in 1943 they amounted to $525,000. Its con­
nection with the Foundation has continued, Mr. Ayres being secretary of
the company today. The superior strength of a product that sells to a
multiplicity of consumers and is differentiated in quality from that of
competitors, and the connection between unpretentious hard work and
success, were demonstrated to the Foundation by this experience.

Manufacture of Pipe Organs
One of the oldest concerns in Louisville was a partnership of three
brothers, making and installing pipe organs. These brothers were descen­
dants of a family that had built pipe organs in England as early as 1820,
had moved to Chicago in the late 1860’s, and moved again to Louisville
after the Chicago fire of 1871. In 1925, when many churches and motionpicture houses were installing new pipe organs, an expansion of the
Louisville plant was required. The company applied to the Foundation
and received a loan of $60,000, secured by the physical assets and also by
the endorsement of the three brothers.
At the insistence of the brothers, it was arranged for the loan to be
retired by annual payments of $7,500 for four years, with a balloon note
for $30,000, one half the amount of the loan, to be paid in the fifth year.
Federal Reserve Bank of St. Louis

[45 }

The company met the first four notes promptly. But when the balloon
note fell due in 1930, not only was the depression causing slowness in
payments of church debts but also the motion-picture industry was shifting
to the use of mechanical sound equipment and abandoning the pipe
organ. The Foundation refinanced the $30,000 obligation for five years,
$5,000 being payable annually for four years, with a $10,000 balloon note
payable at the end of the fifth year.
The first $5,000 payment was received, but extensions were necessary
in 1931 and, again, in 1934 and 1935. A problem of succession now arose,
complicating the financial problem. Through the retirement of two of the
brothers and the death of the son of the third, the business was left in
the hands of one partner, an elderly man, and one surviving heir. Never­
theless, in 1939, when the debt had been increased by $4,900 in unpaid
interest, the Foundation again refinanced the obligation at a reduced
rate of interest, under a contract calling for monthly payments over a
10-year period. The organ market had partly revived and some payments
were made under the new arrangement.
The tolerance shown by the Foundation was rewarded when, in 1943,
the company developed new vigor by obtaining a war contract for highly
specialized airplane parts. This contract in turn attracted an Eastern
concern’s attention to the special machinery in the organ factory and
resulted, in 1944, in the sale of the enterprise. Although the liquidation
process is not yet completed, the Foundation will apparently receive the
return of its investment in full.

Production of Bakery Goods
Two baking enterprises financed from the community fund have histories
that are to some extent interrelated. The first company originally was
located 30 miles up the Ohio River from Louisville. In 1926 its manager
wanted to move into the city to save production costs. The Foundation
provided the company with a site and a new four-story concrete building,
costing $60,000, but when the mortgage was filed, the stockholders living
in the upriver community learned of the impending move and secured an
injunction, tying up the machinery. Thus the company had a vacant
building on its hands and no equipment other than one automobile.
Interested in protecting its investment, the Foundation loaned an
additional $10,000, located private investors who put up $10,000, and,
later, found an individual backer who invested $50,000. The vacant
building became excellently equipped, and production began.
Sales were made locally, and for a time the business appeared to be
moderately successful. But after a certain period, delinquency in the
payments indicated that the company was operating at a loss. Upon
studying the situation, the Foundation determined that a new sales policy
was necessary and located a sales manager, experienced in another line,
who was willing to undertake the task. Under the changed policy, city
Federal Reserve Bank of St. Louis


sales were dropped and bakery products were sold in carload lots to outof-town wholesalers. This policy not only paid but resulted in a greatly
increased production in a few months’ time, so that an expansion of
plant became necessary. The Foundation in 1934 refinanced the unpaid
balance of $19,800 and made an additional investment of $50,000. Thus
expanded, the company prospered, becoming consolidated in 1936 with a
national baking concern and retiring the Foundation’s investment in full.
A young man who had helped to upbuild the revised sales policy that
had benefited this concern later brought to the Foundation a proposal for
the salvage of another baking company, an old-established but obsolescent
enterprise that was on the verge of being taken over and liquidated by its
creditors. On the condition that this man be employed as general manager,
the Foundation made a loan of $35,000 and also located private investors.
Within a short time, this enterprise, too, was rehabilitated. The plant
was streamlined, a modern baking tunnel and other mechanical devices
were installed, and within a year’s time the business was placed on a
profitable basis. An expansion became necessary in 1941, and the Founda­
tion loaned an additional $15,000.
This company’s gross sales, which prior to 1940 had averaged about
$225,000 a year, in 1943 amounted to $987,000. The Foundation’s account
was retired in full in 1944, the last 28 monthly notes having been recap­
tured out of profits.

Manufacture of Enameled Metal Products
The Foundation in 1927 asked the manufacturers of Louisville to list
whatever materials or partly processed supplies they were obtaining from
places other than Louisville. The purpose was to identify those types of
manufacturing that would at once increase industrial employment in the
community and accomplish cost savings for its existing industries. From
this inquiry it was learned that several manufacturers were sending metal
parts elsewhere to be enameled. The Foundation accordingly communi­
cated with several metal-enameling concerns, one of which was eventually
invited to establish a plant in Louisville.
The Foundation loaned $49,938 to build a plant for this concern. The
plant was completed and production began, but the enterprise did not
prosper and the account, retirable semiannually over a 10-year period,
after a time became delinquent.
Upon investigation, it developed that friction existed between the
Louisville investors and the controlling stockholders in another city.
This situation finally came to a head when, after a six-year period of
unsatisfactory operation, the Foundation acted as umpire. Under the
arrangement that was finally worked out, the absentee interests were
bought out by Louisville investors. The plant manager, who was con­
sidered capable by the local interests, became president of a new inde­
pendent concern. The former controlling group paid half of about $26,000
in accrued interest, and the Foundation wrote off the other half and
Federal Reserve Bank of St. Louis


extended the remaining notes. After achieving its independence, the
enterprise became profitable and began systematically to retire its debt.
Meanwhile, the Foundation had brought to Louisville, by an invest­
ment of $18,000, a small metal-working plant of a complementary type.
This plant was located next to the first plant, and, after a close association
had developed, the two concerns in 1935 merged voluntarily into a single
company. Their combined indebtedness to the Foundation at this time
was $62,500. Over a four-year period this debt was reduced to $59,500, and
in 1939 the Foundation aided the merged enterprises by investing an
additional $10,000 of new money and at the same time refinancing and
extending the previous $59,500 obligation.
The combined company gradually expanded. Early in the current war
its president invented an ingenious all-metal box for the shipment of
gunpowder abroad, and obtained a large military contract for its produc­
tion. Plant expansion was required, and the Foundation loaned $30,000
for this purpose and also made a further loan of $13,500 for tools and
equipment, the latter loan to be retired on a royalty basis at the rate of
10 cents for each metal box delivered. This loan was retired in full at the
end of only five months. By the first part of 1944, the enterprise had
considerably increased its personnel, had paid its current notes a full year
in advance, had expanded further from earnings, and had recaptured its
last 12 monthly notes.

Production of Stamped-Metal Devices
The Foundation’s outstanding experience in financing an inventor began
in 1927 and has continued until the present time. The inventor-was a
designer of ingenious stamped-metal specialties, who had formed a
corporation with two brothers in Chicago. The company decided to move
to Louisvile and to make furniture hardware. The corporation had only
a modest capital; accordingly, the Foundation loaned $54,062 on a 6 per
cent first mortgage, to provide a building. This was a 10-year loan,
retirable monthly, and, on the expectation of increased earnings, the
monthly payments were graded from $150 at the start to $960 in the
tenth year.
From furniture hardware, the production soon expanded to include
automobile accessories, advertising premiums, and many metal novelties.
In spite of this versatility, money was apparently being lost, and the
Foundation’s analysis disclosed the fact that some articles were being sold
below cost. Better cost-finding methods were installed, and more capital
was obtained as the result of the improved position.
The enterprise became embarrassed, however, in 1930, by the closing of
a bank in which its funds were deposited. At that time the company had
an excellent contract for automobile hood catches, made for a Detroit
concern, but the day came when it had no materials and no credit. The
Foundation acted promptly and obtained a carload of steel by guarantee­
ing the credit of the company.
Federal Reserve Bank of St. Louis


In the following year the various creditors threatened to bring about
a liquidation. But this catastrophe was averted by the Foundation, which
acted as virtual receiver, carrying the pay roll, arranging extensions and
allocating the income. An additional $50,000 was raised in New England
by the inventor. The difficulties, however, continued. The company was
indebted to a Louisville bank, as well as to the community agency. By
funding into a new mortgage the unpaid balance, the accrued interest,
and an additional loan of $5,000, the Foundation in 1933 kept the venture
alive. This transaction was made conditional upon the extension of the
bank loan for one year, and the bank granted the extension.
With the secretary-treasurer of the Foundation acting as secretary of
the company, the business was reorganized and carried on until, shortly
before the current war, an excellent contract was obtained, covering the
manufacture of carpet-sweeper parts for a chain-store concern. The in­
ventor designed the parts and made the necessary dies, but again steel
was lacking; a carload was obtained, once more through the Foundation’s
effort. The carpet-sweeper contract, along with the tolerance of the
creditor organization in granting extensions and performing various aids,
gave the company a new start.
The account was being satisfactorily retired when, early in 1941, the
company obtained a good sized war contract. A building expansion
immediately became necessary, and the Foundation provided $40,000
for this purpose. But also, this contract called for a plant modification
costing $400,000 and required working capital in the amount of $600,000.
A Government agency was willing to supply the necessary funds but
required a performance bond, which no bonding company would under­
write because of the debt to the community fund. The Foundation,
accordingly, revised its old mortgage, eliminated $12,575 in accrued
interest, and by improving the company’s statement enabled the bond
to be written.
The enterprise increased its employment to 300 workers and began
operating on three shifts. From the proceeds of the war contract all
delinquencies in the Foundation’s account were removed, and in 1944
the full retirement of the investment was not far distant. The plant
operation has become highly efficient and the company’s postwar pros­
pects are regarded as good.

Macaroni Manufacture
A member of a firm of macaroni manufacturers in Chicago, desiring to
establish a business to which his two sons might eventually succeed, sold
his partnership and cast about for a new location. The former manager
and sales manager of the Chicago company proposed to go to California,
but since Louisville had a source of capital it was decided to establish a
new plant there. The Foundation was willing to lend $50,000 for building
purposes but required that the private capital amount to $100,000; the
former partner supplied $65,000 of this sum and his associates put up the
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rest. The Foundation’s loan started the enterprise, and the struggle for a
market began.
At first the local market proved unresponsive and in its first full year
of operation the concern lost $15,000. But the Foundation supported its
commitment by additional loans of $12,500 in 1930 and $10,000 in 1931.
These investments brought results, and in its third year, 1932, the com­
pany made a profit of $65,000. The head of the firm soon bought out his
associates and the father and his two sons had the enterprise to themselves.
In 1934 a plant expansion became necessary, and the Foundation loaned
an additional $15,000 for this purpose.
Sales had now increased so that the company was selling its macaroni
over a considerable territory, including some sales to California. The
father and sons worked hard, and this was another case in which nearly
all the earnings were plowed back into the business. Although the
Foundation had extended its credits on a 10-year basis, all four of its
investments were fully retired in 1938.
In 1939 the enterprise required $200,000 for further expansion. This
amount was above the Foundation’s lending limit, but aid was rendered
in obtaining the necessary credit from an insurance company that was
making industrial loans. Today this macaroni company, with 500 workers
steadily employed, is among the larger enterprises that have received
Foundation aid.
One of the sons, in 1938, saw an opportunity to engage in a related
line of business without breaking his connection with the parent company.
He invested in a small concern that was making chili sauce and other
food products to be sold with macaroni, and the Foundation aided this
side venture by lending $10,000 for its expansion. Within three years
this investment was repaid.
The intimate contact of the Foundation with the macaroni enterprise
has continued. This episode further proved the value of the broad mar­
ket and the less spectacular type of venture as the basis of risk appraisal.

The printing industry in Louisville owes much to the Foundation, two
important printing concerns having been rehabilitated and kept in
existence by loans from the community fund. The first was an oldestablished company that printed pulp magazines for a New York pub­
lishing house. This publishing business had grown so that for some time
prior to 1935 the plant had been working on a three-shift basis. Its
equipment was running down from overwork, and in 1935 the loss of
the printing contract was threatened. A Foundation loan of $50,000
enabled the plant to be put in good mechanical condition and also
provided necessary working capital. The contract, accordingly, was saved.
The loan was fully repaid in three and a half years. Expansion continued,
and in 1944 the publishing house bought this plant for a reputed price
of one million dollars.
Federal Reserve Bank of St. Louis


Another long-established enterprise, engaged in job printing, likewise
became obsolescent and in 1939 was in the hands of a creditors’ com­
mittee. The Foundation loaned $100,000, of which $60,000 modernized
the plant and $40,000 provided working capital. This investment pro­
tected the employment of about 400 members of the printing trades.
The payments on this loan have been kept consistently a full year in
advance, and at midyear of 1944 an additional year’s payments had been
recaptured from profits.

Manufacture of Work Garments and Uniforms
A Louisville bank, taking over the assets of a defunct debtor, came into
possession of a small garment plant. The bank retained, to adjust the
estate, an experienced buyer of garments who was known to certain
officers of the Foundation. The adjuster did a successful job and was
enabled, partly through Foundation support, to buy the machinery from
the bank and engage in garment manufacture.
This venture, launched oh very little working capital, expanded from
earnings. A vacant building had just been acquired when the Louisville
flood of 1937 occurred. A partner who had entered the business then
induced the original enterpriser to move to Virginia. A year later the
founder returned to Louisville and applied for a Foundation loan. He
had used his share of the earnings to buy out his partner and now owned
the machinery in Virginia and an interest in the vacant building in
The Foundation loaned $30,000 to bring back the machinery and
reopen the plant. But the capital position of the enterprise was so weak
that bank credit was unavailable. In addition, two developments, both
in 1941, created an acute expansion problem. The proprietor had
designed a work suit that resulted in a large chain-store order, and
almost simultaneously an army contract for uniform pants was obtained.
Accordingly, the Foundation, for the only time in its experience,
undertook to finance a business on the security of accounts receivable.
All chain-store and Government payments were assigned to the Founda­
tion, which established a drawing account for working purposes. The
result was that the company expanded to 250 workers and in 1944 was
doing a good business, about 60 per cent of it in war production and 40
per cent in work clothing for the chain-store trade. More than $500,000
had passed through the drawing account by the middle of 1944. The
capital loan also was being steadily retired. A local bank in 1944 extended
a line of credit to this company.

Packed Poultry Meat
An individual enterpriser with a good idea but little experience started
a tiny venture, in a shed, in the canning of poultry meat. The product
had merit, and investors became interested to a limited extent, but
progress was slow and when application for a capital loan was made to
Federal Reserve Bank of St. Louis


the Foundation, the credit was declined. One of the investors was a man
whom the Foundation originally had brought to Louisville to be sales
manager of a client concern that made food products. Through a busi­
ness consolidation this sales manager had become displaced, and in 1940,
when the poultry-packing enterprise went into the hands of its creditors,
he became its receiver, paying all the debts in full. Under his leadership
a corporation then was formed, with sufficient capital to start the enter­
prise anew. Application was made to the Foundation for the second time,
and in view of the improved managerial and financial status this applica­
tion was granted, the Foundation advancing $14,000 for a new building.
Rarely in the Foundation’s experience did a small investment prove
more fruitful in terms of business expansion. The product took hold,
sales mounted, and from three employees the working force soon increased
to 50 or more. In 1943 a war contract for the product was obtained and,
since a further expansion was required, the Foundation made a second
loan of $17,500. The employment proceeded to expand to 125 workers.
In 1944 the poultry meat was being packed and sold in carload lots and
the Foundation investment was being rapidly retired, both through
current payments and the recapture process.

Financing of a New Public Airport
Concluding this selection of case stories is the record of the Foundation’s
part in creating a new public airport for Louisville. Bowman Field,
Louisville’s original airport, was developed after the first world war as
an addition to the public-park system on land bought from the Alien
Property Custodian. As Louisville grew the location of this airport inter­

fered with suburban development, and community planners wanted a
change. Early in the war the demands of the army training program
exceeded the capacity of Bowman Field, and this condition, coupled with
the possibility of attracting aircraft manufacture, created the need of an
additional airport in an industrial location. This need concurred with
the ultimate intention of the city planners. Land for the new airport
was available, but a difficulty was encountered that would have been
hard to solve but for the community fund.
The difficulty arose from the fact that the Civil Aeronautics Authority
could not take over and develop an airport site that was encumbered,
whereas the Louisville and Jefferson County Air Board lacked funds for
an outright purchase of the needed land. At first it was proposed that the
Air Board should borrow $100,000 at 3 per cent from the Foundation,
but this would have involved a lien. The law, however, contained a
provision permitting a public agency to exchange one piece of property
for another, and this provision provided the solution. The Air Board gave
the Foundation a deed in fee simple to 140 acres of land that actually
constituted a considerable portion of Bowman Field. The Foundation
paid to the Air Board $100,000 as a technical purchase price. The Air
Board simultaneously leased back the Bowman Field property from the
Federal Reserve Bank of St. Louis


Foundation for $3,000 annually, which was the equivalent of 3 per cent
interest on a $100,000 loan. The Army, of course, remained in undisturbed
possession of Bowman Field, and now the Air Board used the $100,000
to purchase and consolidate the various parcels of land that became the
new Standiford Field.
This site was leased to and developed by the Civil Aeronautics Author­
ity, and the Vultee and Curtiss-Wright aircraft plants became established
as the result of the new development. Part of the transaction had been a
“gentlemen’s agreement” by the Air Board to repurchase the Bowman
Field property from the Foundation as tax funds became available. The
Air Board encountered a tax windfall in 1943 and recovered the deed
from the Foundation by repaying the $100,000 in full. This act completed
the interim-financing service of the community fund. After the war,
Standiford Field will probably become Louisville’s principal airport,
allowing Bowman Field to be converted for park and recreation purposes.
Many other episodes in the Foundation’s variegated financial history
could be recited, but the foregoing selection provides a sufficient indica­
tion of the types of business problem encountered and the Foundation’s
unformulated and opportunistic methods of work.
Federal Reserve Bank of St. Louis


In exploring the implications of the Foundation’s experience, the same
difficulty is encountered that is common to all sampling studies: namely,
that the sample may or may not be typical of the general situation in a
larger field. The Louisville plan, primarily presenting a combination of
industrial-bureau activity with the provision of term capital to those
manufacturing situations that are not ordinarily eligible for investment,
might succeed elsewhere and it might not. Such a plan fundamentally
depends upon the particular industrial character of a given area and upon
the particular extent to which the demand for manufacturing capital in
that area is or is not otherwise fulfilled. Also the many attendant issues
involved in developmental policy or in community-found administration
depend to a considerable degree upon purely local conditions, including
the economic background, the abilities of individuals, and the quality
of the community leadership. Knowledge of the conditions that exist in a
given area, accordingly, must determine judgment as to the applicability
of the plan. It may be generally accepted, however, that countless com­
munities will exert themselves to influence industrial location in the
fluid period of readjustment, and also that small businesses, as well as
large, must have an adequate access to capital and credit. Some of the
methods developed by the Louisville Industrial Foundation in the course
of its long and singularly varied experience appear to have suggestive
implications in both of these connections.

Developmental Role of Investment Funds
The entire record attests, for Louisville at least, to the effectiveness of
supplementing and increasing the flow of capital, as a medium of
industrial development. Louisville, largely under the influence of its
Federal Reserve Bank of St. Louis


community fund, grew from a semirural community to a flourishing
industrial center. When allowance is made for the advantages that the
community intrinsically possessed, an ample margin remains that can
only be credited to the known availability of funds for manufacturing
purposes. The effects of the community fund were both direct and
indirect: direct with respect to the enterprises that were financed, indirect
in encouraging private capital to flow into those enterprises and in leading
other enterprises to become located in the area. The many enterprises
that came to Louisville without being financed did so largely because
funds might be at their command in time of need. The general expecta­
tion of the Louisville leaders of 1916 that the community would make
industrial progress if a supplemental capital source was established, has
been abundantly fulfilled.

The Revolving Fund as a Developmental Device
The decision of the original planners to use the community fund as a
revolving fund also appears to have been extremely sound. This policy
presents a contrast with the policy more generally followed in communi­
ties of the South; namely, that of bringing in industries by subsidizing
them. Although subsidization has undoubtedly increased industrial
employment in underindustrialized areas, its critics have never been
satisfied that the offer of subsidies attracted the better types of enterprises
or that the principle of subsidy itself was not a violation of the standards
of fair competition. As generally applied in the South, subsidization
often has led to the development of branch plants whose profits have not
been retained within the production area.
In comparison, the revolving-fund policy in Louisville has tended to
develop independent enterprises, largely owned locally. While these
companies temporarily incurred debt, the debts were generally repaid at
interest and the business independence accordingly was preserved. Also,
from the point of view of the community, the establishment of a loan
fund proved to be an economical method of development, inasmuch as
the industries themselves bore the developmental costs and actually
increased the community fund.
A slight suggestion of subsidization may be noted in some Foundation
transactions. The absence of direct dividends and the investment by the
public for indirect returns are of the general nature of subsidy. The
capital losses may be considered unintentional subsidies, and the few
cases of interest write-off were subsidies in a more direct sense. But the
various extensions that were granted, and the free aids that were furnished
to the business clients, were much less subsidies than sound business
policies of investment support.

Relative Desirability of Types of Enterprise
A recurrent problem of community development has been that of making
a selection among the many different types of industry that might be
Federal Reserve Bank of St. Louis


encouraged or brought in. With respect to types of production, the
Foundation’s answer may be expressed in the one word: “diversified.”
By fostering a wide variety of manufactures, the institution has helped
to provide a versatile opportunity of employment for the resident worker,
to prevent the community from being dependent upon the ups and
downs of single industries, and to reduce the production costs of other
local enterprises.
But there is another aspect to this problem of selection. The Founda­
tion has financed new, brought-in, recently founded, and old-established
enterprises and has obtained in many respects its best results in financing
those enterprises classified as recently founded. Manufacturing ventures
that had been already started by individual venturers and carried through
their difficult periods of infancy without outside financing proved more
responsive to capital assistance when it came, and gave less trouble to the
investor, than any other type. The financial record bearing out this point
is given in table 14.
As the table shows, all eight of the undeveloped enterprises survived,
whereas in every other category one or more businesses liquidated. The
recently founded ventures, furthermore, averaged considerably less in
their capital requirements than the other three types; they required less
initial capital than any other type and less additional or subsequent
investment. Also these young but proved-up ventures needed less refinanc­
ing than any other type except the mature establishments. The table
also shows that no capital loss was sustained from the undeveloped
ventures. As some of the case stories suggest, employment in the recently
founded concerns expanded notably when capital was applied.
In contrast, the new enterprises required the largest average amount
of capital, needed the largest amount of refinancing, and incurred the
largest number of liquidations as well as the highest amount of capital
loss. The brought-in enterprises ranked second in total capital require­
ment, but their record in this respect was somewhat deceptive, as their
initial capital requirements were fairly low, whereas their subsequent
need of follow-up new money was the greatest, on the average, among
the four groups. However, only one capital loss was incurred in this group
and liquidations were but two. The mature enterprises ranked third in
total capital requirement and required very little subsequent investment;
there was no capital loss in this group. But this type of investment was
not, in all cases, especially productive of new employment.
The Foundation itself has increasingly favored the already-established
but undeveloped enterprise as an object of investment.

The Marginal Financial Area
Beyond the implications for developmental work, the Foundation’s
methods also have somewhat important implications in the field of
finance. In Louisville, as doubtless would be true in many other com­
munities, there arose from time to time a fundamentally worthy type of
Federal Reserve Bank of St. Louis




Item, for Comparison

. OldRecently
Brought-in Founded
Enterprises Enterprises Enterprises Enterprises

Number of enterprises financed . .
Number afterward liquidated . .
Average gross investment .... $85,725
Average total new money ....
Average initial new money . .
Average additional new money 15,769
Ratio of additional to
initial new money ....
Average refinancing, amount . .
Ratio of refinancing to
total new money....................
Number of capital losses ....
Average capital loss to each group 11,824
Ratio of capital loss to total
new money for each group . . .














a Averages derived from figures in tables 4 to 13.

investment situation that was unable to command financial support from
the usually established sources. This fact is indicated by the 44 manu­
facturing situations, all more or less ineligible for the ordinary types of
financial accommodation, that were undertaken by the Foundation and,
with only four exceptions, ultimately repaid or are at present repaying
the investments.
It is not clear what the companies that were financed would have done
without the funds supplied by the Foundation; nor is it clear what is
done by companies in other communities that are similarly unable to
meet the standard requirements of investment, especially of mediumterm credit for capital purposes. It has long been suspected that form­
ulated investment standards have been a factor in the industrial mor­
tality rate. Yet the Foundation’s experience indicates that the actual
risk presented by the off-standard business situation may be, at times, less
than theoretical credit standards might imply. Capital itself, properly
applied, can greatly reduce the chances of business mortality.

The Importance of Services to Clients
But the Foundation has exerted itself to protect and improve the business
status of its clients and, by so doing, has aided the community and pro­
tected its own investments. The community motive in the corporation’s
Federal Reserve Bank of St. Louis



investment dealings led the institution to adopt a highly co-operative and
constructive creditor-debtor relationship, and this relationship proved to
be sound business policy. In this respect, the Foundation appears to have
anticipated a modern trend, in response to which certain banks today
are rendering technological, managerial, and marketing aids and giving
advisory services to their industrial clients. The aids rendered by the
Foundation have been of the informal and intimate type characteristic
of a purely local and autonomous organization, and these activities
undoubtedly have had the effect of salvaging many accounts that other­
wise would have lapsed. The small and independent enterprises especially
are likely to show a favorable response to services and aids rendered in
connection with credits, and the Foundation’s experience in this respect
strongly indicates that an active policy of investment support may be an
important clue to success in the financing of small business.

M ..

The Importance of Flexible Financing
In further presenting flexible financing as a desirable and indeed neces­
sary principle, the Foundation makes perhaps its most important con­
tribution. Essentially, its development of flexible financing procedures
was the outgrowth of circumstances. The original administrators of the
community fund evidently regarded the smaller enterprises as being
capable, like the larger units, of meeting fixed-charge obligations con­
sistently and of retiring capital investments in regular instalments of
considerable size. But experience proved that the small businesses, even
when fundamentally capable of carrying and retiring a considerable debt,
could seldom do so without variation in their payments upon account.
Markets fluctuated, products changed, and some business experiments
met with acceptance while others did not. Apparently, the smaller, the
more personal, and the more venturesome the enterprise, the more must
the investor expect and be prepared for a variable return.
The Foundation cannot be said to have welcomed the fluctuating
position of its accounts or to have adopted flexible collection terms on
any basis of choice. Rather, its policies of adaptation were developed
under the compulsion of conditions that continually recurred in the
small business sector itself. Once recognized as deeply characteristic of
this order of enterprise, the fluctuations were easily met. Because semi­
annual payments proved too large to be practicable, the Foundation
turned to monthly straight-line payments. Because the straight-line fixed
charges did not conform to business realities, graded or variable payments
were adopted. When these did not run parallel to the income curves of
the enterprises, extensions and refinancings were liberally granted. Finally,
the repayment of debt was put into a partial relationship with the profit
status of each enterprise, year by year, through the recapture device.
This constant search of compatability in the financing undeniably saved
the lives of some enterprises, whereas a rigid adherence to stated and
rigid terms would have resulted in foreclosures and business deaths.
Federal Reserve Bank of St. Louis


It should be possible to extend flexible financing further than the
Foundation has done. Maximum flexibility, of course, would be gained
through purchasing common stocks outright and sharing in the profitand-loss position of the client enterprises. To this proposal, the present
leaders of the Foundation object on the ground that if the community
fund were invested in small business equities, which are seldom resalable,
the power of the fund to revolve would be gone. Yet in its earlier stages
the Foundation bought preferred stocks on serial retirement plans, and,
similarly, common stock or a partnership may presumably be purchased
under a retirement contract.
Terms of investment retirement have varied widely in business finance.
For example, companies have paid some portion of their profits into
sinking funds, to provide for the retirement of equity holdings at the
will or discretion of the investor. Under a plan of this type, each client
of the Foundation might have established a fund upon which the invest­
ing organization could draw at its own discretion for the reduction of its
investment or the attainment of a sufficient liquidity. Such a fund could
have been established from profits of the businesses, from fixed charges,
or both in any desired proportion. Another plan of this general type is
represented in what is known as “founder’s shares,” in which the principal
amount of an equity investment is gradually and regularly retired but
the return upon the investment is derived from and depends upon profits.
A third plan is that of the flexible interest rate, in which the interest
charge is related to the profit status; this plan somewhat resembles the
recapture arrangement, except that it applies to current payments.
Plans such as these are mentioned only as illustrations of further
developments that are possible in flexible financing. The Foundation not
only has called attention to the important principle of flexibility in its
bearing upon the financial problem of small business but has made
considerable progress along the pathway of its application.

The Question of Equity Participation
The fundamental objection made by leaders of the Foundation to any
form of equity participation is that ownership does not protect the
investor in the event of liquidation. It is, of course, true that the mort­
gage holder comes before the equity owner in his claim upon the assets
of a defunct concern.
The central consideration in this connection is the attitude toward the
prospect of liquidation itself. A policy of complete loss avoidance became
ingrained in financial practice as a consequence of the depression and had
a considerable effect in curbing industrial experimentation. To concen­
trate upon the possibility of failure and liquidation is, of course, to lead
the investor, almost inevitably, away from all forms of risk participation
and to paralyze the spirit of venture in finance. In the case of the
Foundation it led to the well-secured credit; yet it seems significant that
only eight of the Foundation’s 44 client situations, in a 28-year period
Federal Reserve Bank of St. Louis


that included two depressions, resulted in liquidations, voluntary or
forced. Nevertheless, the specter of liquidation still is seen in the avoid­
ance of equity investment and the insistence upon first-mortgage security,
even though one result is a limitation upon investment returns.
What would have been the Foundation’s proportion of total losses to
total profits had it purchased one-third equities in its various client
enterprises (assuming such equities were for sale) instead of making the
same amount of investment in fixed-return loans? Unfortunately, data
are lacking for the evaluation of the equities of these concerns during
the varying periods involved in this record. Hence an exact comparison
study cannot be made. Of the 44 manufacturing concerns, 8 were
liquidated, about 10 provided livings for their workers and proprie­
tors, about 18 earned moderate profits over periods of years, and about
8 expanded considerably and became genuinely profitable—in some
of the cases, extremely so. The profit balance of the whole portfolio
accordingly, was well over on the right side and the Foundation, had it
held equities, evidently would have profited considerably more than it
would have lost. Equities in the 30 manufacturing situations entered
since 1922 would almost certainly have paid greater returns than did
the interest. As it was, by adopting a lending position and defining its
earnings in terms of the fixed rates of interest, the Foundation indeed
placed a floor under its losses but, at the same time, put a ceiling over
its possible returns.

The Importance of Sound Appraisal
Obviously the fundamental consideration in either credit or equity invest­
ment is soundness in appraisal of the business prospects of an enterprise.
The Foundation’s appraisals became increasingly sound. Those appraisals
have rested upon two primary factors: the business ability and working
capacity of the men behind the enterprise and the prospective market­
ability of the products. In appraising the personal factor, the Foundation
generally accords little weight to past histories of business trouble, as long
as no dishonesty was involved. A weak capital position of an enterprise
is regarded as hopeful if the man be energetic and the sales prospect
good. The disappearance of losses in the Foundation’s record after 1930
was evidently much more closely related to the improvement in appraisals
than to the insistence upon physical security. Probably, on the same
appraisal basis, the equity position, which is the true venture position,
could have been safely assumed.

The Community as a Capital Source
The culminating implication of the Foundation’s financial experience is
that a high degree of local autonomy is necessary to an organization that
would successfully finance the smaller and less-standardized business ven­
tures. Most situations with whch the institution was concerned were local
situations, no two of which were identical in scope and terms. This fact
Federal Reserve Bank of St. Louis


of variation in turn required a neighborhood intimacy of contact and
often an extremely original course of action by the Foundation in entering
and supporting its accounts.
In Louisville, this intimacy of approach and independence of action
are regarded not only as essential but also as implying that small business
can be successfully financed only by a purely local organization, having
no overhead affiliations, no red tape, and no outside control. So strongly
is this believed that some Foundation leaders have expressed the view
that an investment agency of national or even regional scope, public or
private, would fail in this particular financial field. The reason given is
that large institutions ordinarily have rigid rules and standards and do
not give their local representatives a sufficiently free hand.
Certainly the Foundation’s success in financing and servicing the local
and decentralized business concerns of its immediate vicinity has arisen
directly from its ability to maintain close personal contacts and to make
such immediate and specific decisions as each situation might require.
It is argued, by extension, that the community itself is the most appropri­
ate source of capital for the enterprises of local ownership and scope.
A dilemma is presented by this contention. On the one hand, it may be
accepted that a high degree of local automony in the administration
of the financing agency is essential to success. On the other hand, a
purely local financial institution has but limited funds at its command.
How to preserve the necessary autonomy while bringing into play the
abundant resources of national or regional investment capital accordingly
becomes the problem.
One solution contemplates the borrowing of central funds by the Foun­
dation for reinvestment purposes, should additional resources be needed
in the readjustment period. The charter of the corporation permits it to
borrow up to $250,000.
Other suggestions for safeguarding local autonomy when other than
local capital funds are obtained have also been made. One is the proposal
that the smaller businesses themselves should combine into credit associa­
tions, somewhat similar to those in agriculture, for purposes of joint
borrowing. Another is the suggestion that region-wide or area-wide ven­
ture foundations should be formed and capitalized to participate with
local funds such as that of the Foundation. The general advantages of a
two-level system, combining central guidance and resources with local
administrative autonomy, have been shown in another connection.16
It is conceivable, in theory, that large central suppliers of capital funds
might learn to operate through self-governing local branches, or through
unaffiliated local agencies. The problem is essentially one of administra­
tion. In demonstrating within its locality the necessity for informal
contacts and for unconventional and prompt decisions, as part of the
financial relationship, the Foundation has emphasized a principle that
requires consideration if funds from central and standardized institutional
E. J. Hopkins, Mississippi’s BAWI Plan: An Experiment in Industrial Subsidization
(Federal Reserve Bank of Atlanta, January 1944).
Federal Reserve Bank of St. Louis


sources are to be translated into the terms of the decentralized and
variegated small business situations.
An adequate supply of capital is a necessity of business life. The retir­
able term investment, whatever its precise form, represents a primary
need of the personal, decentralized, and independent order of business.
With the term investment, a willingness on the investor’s part to make
necessary adaptations in the retirement schedules becomes almost a
necessity of life for the fluctuating small enterprise; and a program of
business aids, accompanying the investment, is both appropriate in
dealing with the personal ventures and necessary, in many cases, as an
investment support. In contributing importantly to the development of its
own community, the Louisville Industrial Foundation has performed the
more general service of illustrating three working principles—flexibility
in financial arrangements, constructive participation in the nonfinancial
problems of client enterprises, and the individualistic approach that
comes with high local autonomy—involved in the successful financing of
the smaller business enterprises.
Federal Reserve Bank of St. Louis



Articles of Incorporation of the
Louisville Industrial Foundation

The name of this corporation shall be Louisville Industrial Foun­

Its principal place of business shall be in Louisville, Jefferson County,

The nature of its business shall be to advance and develop the City of
Louisville and vicinity industrially, and to accomplish this purpose the
Foundation shall have full power and authority to subscribe for, own,
hold or transfer stocks, bonds or other securities in, any manufacturing
corporation now or hereafter established in Louisville or vicinity; to
advertise the advantages of said City and vicinity; to empower one or
more of its stockholders to act as director or directors, for and on its
behalf, in any corporation in which the Foundation may be a stockholder;
and to perform and do all other acts which may be deemed necessary to
carry into effect the purposes for which the Foundation is organized.

The authorized capital stock of the Foundation shall be Eleven Hun­
dred Thousand Dollars ($1,100,000.00), divided into eleven thousand
(11,000) shares of the par value of One Hundred Dollars ($100.00) each.
The stock shall be paid for in ten (10) equal installments: the first
installment of 10 per cent to be paid at a date to be fixed by the first
Board of Directors, and further installments of 10 per cent each to be
paid at intervals of six months until the stock is paid for in full.
Any stockholder may anticipate the payments of his stock, in whole
or in part.
On the payment of the first installment ad interim stock certificates
shall be issued to the subscribers, and thereafter, as each installment is
paid, the amount so paid shall be credited on the said stock certificates.
When all the installments have been paid, the regular stock certificate
shall be issued to the subscriber.
As it is the purpose of the Foundation to conduct its affairs so as to
make its investments as safe as possible, consistent with the purposes of
the corporation, the Directors, when subscribing to the shares or bonds
Federal Reserve Bank of St. Louis


or other securities of any corporation, shall, when in their judgment it
seems advisable, require any or all of the following: that securities shall
be redeemed within a given period; that respresentation shall be allowed
on the Board of Directors; the appointment of an expert accountant to
examine the books and accounts at regular intervals; that if common
stock is taken there shall be no preferred stocks or bonds outstanding;
that if preferred stock is taken there shall be no bonds outstanding; and
any other safeguard which the Foundation’s directors may deem necessary.
The Board of Directors may use such part of the income or the capital
of the Foundation as seems to it discreet, in paying its necessary expenses
and in other ways in carrying on the business of the Foundation and the
purpose for which it is organized.
As the Foundation is organized for the purpose of promoting the
industrial development of Louisville and vicinity, the Board of Directors
is not to be in any way responsible on account of any loss which the
Foundation may suffer by reason of subscription to or purchase of stocks,
bonds, securities, or property, real or personal, of corporations in which
the said Board of Directors may determine to invest said funds.
A statement of the affairs of the Foundation shall be published semi­
annually for the information of the stockholders.


For the purpose of incorporation each of the undersigned hereby sub­
scribes to three shares of the capital stock of the Foundation.

The Foundation shall commence business as soon as a copy of these
Articles has been recorded in the office of the Secretary of State as pro­
vided by law, and shall continue thereafter for a period of fifty (50)
years unless sooner legally dissolved; Provided that no subscriptions shall
be binding until bona fide subscriptions to the amount of One Million
Dollars ($1,000,000.00) have been made.


The affairs of the Foundation shall be conducted by a board of not
less than seven nor more than fifteen directors.
At the first meeting of the stockholders fifteen (15) directors shall be
elected, and no change shall be made in the number to be elected annually
unless the Board of Directors shall, at least two months prior to an annual
meeting, fix, by resolution subject to the ratification of the stockholders
at the next meeting, a different number and cause notice thereof to be
sent to the stockholders.
Federal Reserve Bank of St. Louis


From the directors chosen there shall be elected by them a president
and two vice-presidents.
The directors shall also elect, either from their number or outside of
their number, a secretary, a treasurer and a general manager, but may
combine any two or all three of these offices in one person.
The Board of Directors shall fix salaries of officers and employees and
shall determine what subordinate offices shall be created, and may fill the
same themselves directly or through appointment by an executive officer;
but all officers and employees shall hold office at the pleasure of the Board.
The Directors shall determine, by By-laws, from what officers and
empoyees bonds shall be exacted, and the expense of such bonds shall be
borne by the Foundation.
The Directors are to be elected by the stockholders at a meeting held
for that purpose after the recording of a copy of these Articles of Incor­
poration in the office of the Secretary of State as provided by law, and
thereafter Directors are to be elected annually at the regular meeting
to be held at the office of the Foundation in Louisville on the fourth
Monday after January 1 of each year.
It shall be the policy of the Foundation to elect the President of the
Louisville Board of Trade as one of the Directors, and to elect at least
one-half of the remaining Directors from a list of Foundation stockholders
containing three times the number to be chosen, nominated by the Board
of Directors of the Louisville Board of Trade immediately prior to the
first meeting of the stockholders, and thereafter at their regular meeting
in each January: Provided, however, that any Foundation stockholder
may exercise his right to vote for any stockholder he chooses, as Director,
under the laws of Kentucky.
The vacancies in the Board shall be filled by the Board until the next
regular election.

Investments in the stocks or bonds or other securities of any manufac­
turing establishment shall be made only with the assent of two-thirds of
all the Directors of the Foundation.
The Foundation shall not invest more than 10 per cent of its capital
in any one concern, nor shall it subscribe to more than 33 1/3 per cent
of the total cash paid-in capitalization of any one concern; and in con­
sidering capitalization, patents, franchises, sales rights, good will and
similar items shall not be included.


The Directors shall have the power to transfer to one or more Founda­
tion stockholders a sufficient number of shares of stock in any corporation
in which the Foundation may be a stockholder to enable such Foundation
Federal Reserve Bank of St. Louis


stockholder or stockholders to be elected a director or directors in such
corporation; and such stockholder or stockholders shall hold said stock
as trustee for the Foundation.


The highest amount of indebtedness or liability which the Foundation
may at any time incur shall not be in excess of Two Hundred and Fifty
Thousand Dollars ($250,000.00).

The private property of the stockholders shall be exempt from the
corporation’s debts.
Standard Contract of the Foundation18
It is hereby mutually agreed by and between_________ , a corporation,
party of the first part, and Louisville Industrial Foundation, a corpora­
tion, party of the second part, both of Louisville, Kentucky:
WITNESSETH, that for and in consideration of the covenants con­
tained in mortgage of even date between said party of the first part and
party of the second part, the party of the first part hereby agrees:
1st. That until said mortgage shall be fully complied with, it will at
all times, keep proper books of account and will maintain a standard and
modern system of accounting; and that said party of the second part may,
so long as the party of the first part shall be indebted to it, make, or
cause to be made at the expense of the party of the first part and in such
manner and at such times as the party of the second part may require,
inspections and audits of any books, records and papers in the custody
of the party of the first part, or others, relating to its financial or business
conditions, including the right to make copies thereof and extracts
2nd. That within one hundred and twenty (120) days after the close
of each fiscal year, the party of the first part shall furnish to the party of
the second part an audit, certified by a reputable certified public
accountant satisfactory to the party of the second part, showing in form
and detail, satisfactory to the party of the second part, the financial condi­
tion and results of the operations for the preceding twelve (12) months of
the party of the first part.
3rd. That so long as the party of the first part shall be indebted to
the party of the second part in any amount, it covenants that it will not,
without the written consent of the party of the second part, effect or in
18 This agreement is accompanied by mortgage contract of usual form, except as to
the graded-payment and recapture provisions, and by the standard form of note. The
Foundation ordinarily requires separate note covering each monthly payment.
Federal Reserve Bank of St. Louis


any manner make sale or lease of, or any merger or consolidation which
involves all, or substantially all of its assets.
4th. That in the event of a default of any of the terms and conditions
of said mortgage, or this agreement, which should in law give cause for
action in foreclosure, the party of the second part may, at its option and
without liability on its part, participate actively in the management of
the Company and at the expense of the party of the first part, make such
management changes and additions as are best calculated in the judgment
of the party of the second part to conserve the assets and business of the
Company and the investment of the party of the second part.
5th. To furnish, at its own expense, evidence satisfactory to the party
of the second part of its title in fee simple to the premises covered by
mortgage of even date, and further agrees to pay all necessary expenses
for the examination of title and closing of the loan, including all
recording and notary and attorney’s fees.
6th. To elect to membership on its Board of Directors a director
nominated by said party of the second part, who shall be satisfactory to
said party of the first part.
7th. That said party of the first part shall promptly refund to said
party of the second part the taxes paid by it to the state or other taxing
authority, as intangible taxes on the unpaid portion of the notes described
in said mortgage, as returned by the party of the second part for taxation.
8th. It is mutually agreed and understood that said party of the
second part shall not be a party in determining or adjusting relations
or disputes between said party of the first part and its employees, or
their representatives.
Federal Reserve Bank of St. Louis