Evening star., 1933-09-20
CASH FOR BUSINESS
PLANNED BY R. F. c.
Chairman Jones Studies Two
Proposals for Increasing
Flow of Capital.
BY DAVID LAWRENCE.

Capital for business, the big, aching
void OF the whole economic situation, Is
going to be furnished directly or in
directly through the Reconstruction
Finance Corporation.
Pressure on the banks to nberalize
credits Is not succeeding because Of the
timidity of bankers and their belief
that the banks should not take all the
riSkE. But Jesse Jones, chairman Of
the r. F. c., has begun an intensive
effort to find ways and means whereby
the Government can help to stimulate
the flow of capital to business. He Is
working on two plans.
First, an effort to persuade all banks
that they ought to sell preferred stock
in their respective institutions to the
Government. This would enlarge the
capital structure and presumably de-
velop a smaller ratio of deposits to
capital. Also. it would enable banks
to cover the risk in their slow loans by
serves they probably have set up al
ready against such loans.
Second, a drive to create community
mortgage corporations which would
lend one or two or even five-year money
TO businesses which would give as Sc
curity for loans a mortgage on their
plants or equipment or inventories. A
system of monthly or quarterly curtail-
ments of these debts out of earnings
is being suggested.
Law Omits Definition.
The hope is that local bankers
everywhere will help in the formation
Of these mortgage institutions, though,
to be sure, under the Glass -Steagall
banking law passed recently all af1ili-
ates are banned, so there can be no
direct participation by the banks. The
latter could lend money, however, to
the mortgage corporations and thus
find utility for their excess reserves.
The mortgage companies would be
organized locally or regionally and the
r. F. c. is prepared to be Of assist
ance in setting them up. The r. F. c.
cannot buy preferred stock in them,
though there is some doubt on this
point, as the law does permit the
Government to purchase the preferred
stock of trust companies. No deflni-
ton Of what a trust company is has
been made by the R. F. c. That
could not be amplifed. because the
law itself makes no definition.
Approximately half billion dollars
Of r. F.. c. money is available for
direct lending but it is assumed that
no such amount would be needed to
get the mortgage company plan into
operation. If more were desired. the
assumption is that Congress in Janu-
ary could easily provide more. BY
that time the plan would have tested
itself
1t is significant that J. NJ. Keynes.
the famous British economist. cables
from London to the New York Herald
Tribune that his analysis Of the pause
in Americas progress under the N. r.
A. can be attributed wholly to the fail
ure to make capital expenditures
rapidly, and that the same mistake has
been made by the British government.
Needs More Capital.
1T is impossible" he says. ito in
crease employment without first in
creasing demand. and, so far as the
home market Is concerned, there is no
conceivable way Of putting more pur-
chasing power into use except by in
creasing loan expenditures. Other
measures merely serve to divert pur-
chasing power from one direction to
another without increasing it."
The truth is beginning to dawn on
officials here in very much the way
Mr.. Keynes expresses it. The N. r. A.
program increased wages on the theory
that this would increase purchasing
power. but it failed to take into con-
sideration that business had to have
increased volume in order to sustain
employment and actually to increase
wages And business cannot get in
creased volume without more working
capital
The banks dislike to make capital
loans. Which shall it be, then-in-
flation, which depreciates dollars. or
credit imitation, which presupposes q
capacity on the part of American bust
ness ultimately to pay its debts? The
choice is being put before bankers by
: officials here as one for them to make
For the r. F. c. is still hoping that a
liberalization of credits and the es-
tablishment of new credit machinery
! will make unnecessary the currency in
various quarters.