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for purchasing by the extinguishment of excessive debts.
. . . Any attempt to hold up prices or to save the weaker
debtors necessarily prolongs the depression.
Flynn also firmly pointed out that the best way to relieve the rail-
roads, shaky and hobbled by debt, was to go into the  inevitable
curative process of receivership:
The quicker the correction comes, the quicker the
regeneration of the road will come. . . . Instead of per-
mitting the correction of the fatal flaw [the heavy bond
16
The Missouri Pacific had apparently falsified its balance sheet prior to ask-
ing for the RFC loan, to claim more cash on hand than it really had. Ferdinand
Lundberg, America s Sixty Families (New York: Citadel Press, 1946), p. 233.
The Hoover New Deal of 1932 299
load], the RFC has actually added to the bond load [of
the railroads].17
Despite the speedy enactment of the RFC, Hoover complained
that the Democratic Congress had delayed its passage by six weeks,
allowing securities to be depressed for this length of time below
their  true worth  whatever that may be. Hoover s chief com-
plaint was that Congress did not permit the RFC to lend directly
to industry, to agriculture, or to government for public works.
Congress, in short, did not permit the RFC to loan widely and
recklessly enough.
At last, however, Hoover had his way, and Congress agreed to
transform the RFC from a generally defensive agency aiding banks
and railroads in debt, to a bold  positive institution, making cap-
ital loans for new construction. This amendment, of July 21 the
Emergency Relief and Construction Act of 1932 increased the
RFC s authorized total capital from $2 billion to $3.8 billion, and
permitted loans to states or cities for relief and work relief, for self-
liquidating construction projects, and for financing sales of agri-
cultural surpluses abroad, orderly marketing in agriculture, and
agricultural credit corporations.18 In a retrospective slap at Gen-
eral Dawes, loans were now forbidden to any bank of which a
director or officer was a member of the RFC board. In a later
amendment, the RFC was ordered to allocate $25 million of its
funds to the Treasury to buy the stock of the 12 newly created Fed-
eral Home Loan Banks.
Over the entire year 1932, the RFC extended credits totaling
$2.3 billion, and advanced an actual $1.6 billion in cash. Of the
year s advances, 52 percent were loaned to banks, 17 percent to
17
Flynn, Inside the RFC. Another consequence of RFC loans to railroads was
an approach toward direct socialization from the creditor interest of the RFC in
bankrupt roads, and the consequent placing of government directors on the reor-
ganized railroads. Dewing maintains that  the government through the power of
its loans was in a position to dominate the policy of the reorganized road. Arthur
Stone Dewing, The Financial Policy of Corporations (5th ed., New York: Ronald
Press, 1953), vol. 2, p. 1263.
18
J. Franklin Ebersole,  One Year of the Reconstruction Finance
Corporation, Quarterly Journal of Economics (May, 1933): 464 87.
300 America s Great Depression
railroads (of which over half went to repay debts to banks), and 9
percent to agriculture. In the agricultural field, the RFC estab-
lished regional agricultural credit corporations, and advanced
them $1.4 million, which authorizing credits of $55 million by the
end of the year. The RFC was particularly active in cotton loans.
And although the American Engineering Council hopefully sug-
gested a shelf of self-liquidating public works projects totaling $1
billion (mainly water-supply and irrigation systems), the RFC only
authorized $147 million, and advanced $16 million, for such proj-
ects during 1932.
GOVERNMENTAL RELIEF
If Hoover eagerly embraced the statism of the RFC, he gave
ground but grudgingly on one issue where he had championed the
voluntary approach: direct relief. Governor Franklin D. Roosevelt
of New York led the way for state relief programs in the winter of
1931 1932, and he induced New York to establish the first state
relief authority: the Temporary Emergency Relief Administration,
equipped with $25 million.19 Other states followed this lead, and
Senators Costigan and LaFollette introduced a bill for a $500 mil-
lion federal relief program.20 The bill was defeated, but, with
depression deepening and a Presidential election approaching, the
administration all but surrendered, passing the Emergency Relief
and Construction Act of July, 1932 the nation s first Federal
relief legislation.21 The bill did not go nearly as far as the agitators
19
See Edith Abbott, Public Assistance (Chicago: University of Chicago Press,
1940).
20
Costigan and LaFollette obtained the material for their bill from the newly
formed Social Work Conference on Federal Action on Unemployment, headed
by Linton B. Swift of the Family Welfare Association. The new organization sym-
bolized the recent shift among professional social workers in favor of federal
relief. The May, 1932 meeting of the National Conference of Social Work
reversed the 1931 opposition to federal relief. Irving Bernstein, The Lean Years: A
History of the American Worker, 1920 1933 (Boston: Houghton Mifflin, 1960),
pp. 462ff.
21
Particularly influential in inducing Hoover s surrender was a plea for feder-
al relief, at the beginning of June, by leading industrialists of Chicago. Having
been refused further relief funds by the Illinois legislature, these Chicagoans
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