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.”