Unprecedented Power: Jesse Jones, Capitalism, and the Common Good

Last year saw the publication of a new biography of Jesse Holman Jones. Jones was a national figure at he time of his death some sixty years ago, though he is little remembered today outside of Houston (or even there.) This is unfortunate for us, as his work at the Depression-era Reconstruction Finance Corporation might be a model to address the current economic morass we face in America and across the world.

Author Steven Fenberg has been writing about Jones for twenty years; first a biographical sketch for the Houston Endowment, which Jones founded, leading to a string of projects including the PBS documentary “Brother Can You Spare a Billion.” narrated by Walter Cronkite. Fenberg jokes that “Jones: The Musical” may follow. This may not be a bad idea, considering the public appetite for karaoke shows and distaste for economics and civics.

Fenberg tells of young Jones on the family farm in Tennessee, seeing his father open his smokehouse to down-on-their-luck neighbors: “He also saw Aunt Nancy keep track of who took what so she could make sure her brother’s generosity was eventually repaid. Their charitable but frugal pas de deux showed Jesse that a loan often worked better than a handout and that, given sufficient time, most neighbors honored their obligations and helped others when they could."

The family sells the farm to go into the lumber business in Texas, where Jesse uses the business savvy he learned from his father to take on management responsibilities in his uncles lumber business. He moves to Houston, a city of 50,000 people, in 1898. He establishes credit and after running his own lumber operation becomes a builder and eventually a banker, who was able to ride out the panic of 1907 because he managed to hold more assets than obligations. This experience left his with his own opinions about the need for banking regulations and protections for depositors.

Jones was on hand as Congressman Tom Ball and Captain James A. Baker arranged federal funds for the dredging of the Houston Ship Channel, stepping in to jawbone other bankers into buying $1.25 million in navigation bonds to get the project done, in what may have been the first project to be funded jointly with local and federal money.

By 1912 Jones described himself as a capitalist. He sold off all but one of the lumberyards he’d acquired, keeping the one to assure employment for loyal employees. He built the landmark Rice Hotel (where JFK stayed on his last trip to Texas) on a block of land downtown leased from the Rice Institute, (Now Rice University) in time for the opening of the Houston Ship Channel, and busied himself building ten-story buildings in Houston.

With the coming of World War I, Jones became a more national figure, as Woodrow Wilson tapped him to run the fundraising campaign for the American Red Cross in Houston, and then called him to Washington to head the Red Cross Department of Military Relief. The next two years in Washington and Europe Jones made acquaintances and connections that would lead to him being called again to Washington by Herbert Hoover to join the board of the Reconstruction Finance Corporation after the crash of 1929. Hoover’s response to the crisis was to cut taxes and balance the budget, and his RFC had little mandate or resources to reverse the collapsing course of the U.S. economy. In the fall of 1932, with thousands of banks failing and millions thrown out of work; America elected Franklin Roosevelt to the White House and Democratic majorities to both houses of Congress. His mandate? According to FDR: “The country needs, and unless I mistake it’s temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.”

Roosevelt appointed Jones Chairman of the Reconstruction Finance Corporation and it became the premier agency of the New Deal, the outfit that funded all the alphabet soup agencies; the Works Progress Administration, the Federal Deposit Insurance Corporation, the Tennessee Valley Authority, the Commodity Credit Corporation, the Civilian Conservation Corps, the Public Works Administration, the Home Owner’s Loan Corporation, the Rural Electrification Administration and many others.

A conservative businessman, Jones was a hit with Congress from the start; in 1933 they passed the Emergency Banking Act in seven hours. They were generally happy to fund his agency, especially later as they saw that the loans he made were repaid with interest. Jones and his people made loans to banks, municipalities and corporations such as the railroads. They made small loans too, one went to a barber who needed clippers and scissors; another to a blacksmith who lost his anvil to a hurricane, though Jones wondered how an anvil could blow away.

The RFC under Hoover did little to increase liquidity; money lent to banks and railroads went east to Wall Street creditors. Will Rogers said at the time “The Reconstruction loaned the railroads money, medium and small banks money, and all they did with it was pay off what they owed to New York banks. So the money went uphill instead of down.” This changed under Jones. He lent to railroads with the stipulation that the money would go to hire workers and buy rail stock. When he saw that credit-worthy businesses couldn’t get bank loans, the RFC would make those loans. And loans to business had strings attached; the RFC insisted on a “look-in on management,” they might put one of their own on the Board of Directors, or replace the management altogether.

Some say today that the New Deal did nothing to end the depression; that the U.S. economy only recovered with World War II spending. I would point out that U.S. unemployment from 1933 to 1936 fell from 25% to 15% and that Roosevelt won forty-six states that year. The RFC financed the building of 2,500 hospitals, 5,900 schools, 13,000 playgrounds and improvements on 1,000 airports before they ever got involved in war production. The Farm Credit Administration and Home Owner’s Loan Corporation turned a profit re-financing mortgages of people facing foreclosure.

With his good work and reputation Jones became a well-known and powerful figure, second only to Roosevelt in those days. He well may have been elected president himself if Roosevelt hadn’t run for a third term. Of course Jones wasn’t universally loved. He feuded with Vice President Henry Wallace on the left, and there were plenty of bankers and capitalists who opposed government intervention in their business. He gave the keynote address to the American Bankers Association at four of their conventions, once telling them “Banks that accept deposits but do not extend credit in a reasonable way will not contribute to the general economic welfare nor to business recovery.” He exhorted them to “be smart for once,” and noted that the bankers “did not like my speech, and added that “all I have to say is that more than half the banks represented in front of me were insolvent, and no one knew it as well as the men in our banqueting room.”

Some more of Jones’ words:

“My wife tries to get me to come home nights when I work too late, but I cannot go home when men are waiting in distress. Sometimes I wonder at the endurance, physical and mental, by which we have been able to go on, but I have a fairly light heart now as far as the affairs of our country are concerned, compared to two years ago.”

“I have seen so many broken, distressed, and humiliated men in the last five years that my sympathies go out to every insecure person. Social security within reason, and by proper effort by those secured, is right, and we will be remiss in our duties if we do not try to achieve it.”

It is government’s responsibility to protect the weak from the strong. Human beings have the spirit of dominance. You have it in the oil business. One trouble with the strong and powerful is that they don’t appreciate how hard they hit or how ruthless they sometimes are without necessarily intending to be. To the fleetest goes the race, but we all have to eat.”

“1936 was a pretty good year as far as business goes, and we started clamoring for a balanced budget. You can balance the budget all right, personal or government, but you will get hungry when there is no meat in the smokehouse or meal in the barrel. In my opinion, the key to the situation confronting us today is intelligent, cordial, friendly, determined cooperation between government and business –government and all the people. It cannot be sectional; it cannot be class driven; it cannot be political. It cannot be achieved if we let ourselves believe that our government is our enemy. One thing is certain; we all go up together or we go down together. I prefer to believe we will go up. If we can’t manage to get along, we should give the country back to the Indians.”

After Action Report

I was checking out after some last-minute Christmas shopping when I made the mistake of wishing the clerk a “Merry Christmas.”

Immediately Hillary Clinton and Nancy Pelosi ran up with a group of jack-booted thugs and dragged me off to be vaccinated and gay-married, they took my guns too!

More when I get back from Guantanamo.

Great post at Half Empty today.(http://halfempth.blogspot.com/) First, Hal quotes from Obama’s speech:

“I have no problem with folks saying 'Obamacare,' I do care. If the other side wants to be the folks who don't care, that's fine with me. But, yeah, I do care about families who have been struggling because of crushing health care costs.”

Then he points out that the provision on the Affordable Care Act that limits insurance companies’ medical loss ratio went into effect this month. This means that large health insurance companies (who spent billions of dollars sending thousands of lobbyists to defeat this legislation) are now required to spend at least 85% of premiums on actual health care, or refund the money to their customers. The industry has been accustomed to spending as little as 60% of premiums on health care. The Dept. of Health and Human Services has even issued a ruling that payments to brokers do not qualify as health care. The typical 35% off the top burden for overhead and profit has been a boon for stockholders who enjoy rising stock prices and dividends, and for CEO’s making seven-figure salaries and bonuses, but help make the case for Medicare-for-all proposals, as Medicare delivers care to millions on about 3% overhead.

It baffles me when I hear Congress propose raising the age of eligibility for Medicare as a cost-saving measure when this is the most cost-effective system in the country. Some have proposed that the age of enrollment be lowered year by year to take more people into the system. Who hasn’t heard stories of seniors under the age of 65 divorcing or declaring bankruptcy to become eligible for health benefits?

The coming of this provision is probably responsible for 10% annual rate increases in recent years, which some have blamed on Obama, even though 10% is also the average rate increase during the Bush administration. As GOP presidential candidates unanimously pledge to repeal the law, I wonder how voters would feel about losing benefits already in effect; the probation of companies denying coverage to people with pre-existing conditions, the extension coverage under their parent’s plan to millions of young adults under the age of 26, the $1.5 billion saved by seniors this year as the prescription drug donut hole is eliminated, and now the limit on insurers medical loss ratio. I think that once Americans get to experience “socialized medicine” they’ll never give it up, and that further refinements will eventually shrink the private sector’s part in the system, as medicine becomes a public service and not an opportunity for profit-seeking.

You Might Be A Moran, If You..

1. Believe your point will have a more profound effect if it is printed in all caps with exclamation marks.

2. Spice your opinions with explitives that would embarrass Snooki.

3. Insist that Barak Obama's birth certificate is still a mystery because Donald Trump wonders if the governor and every state official in Hawaii is on the take.

4. Believe if some one calls Republicans idiots, well they are obviously referring to you personally.

5. Believe if we raise taxes on millionaires to avoid closing schools, hospitals, vital infrasctructure, and emergency services, then we are obviously stealing from you.

6. Believe raising Rush Limbaugh's marginal tax rate in line with historical averages matters when you live in a van by the river.

7. Believe Obama is dependent on tele-prompters because he is too stupid to think and speak at the same time.

8. Believe scaring people will change their minds.

9. Quote and cite internet authorities that aren't there or don't report what you claim.

10. Believe people who don't support Republicans must be libruls.