Sobel Wiki: No Funds Available

This week's featured article at the Sobel Wiki is on the National Financial Administration. The N.F.A. was the brainchild of Governor-General John McDowell, who created it in 1880 to deal with an economic crisis that Sobel calls the Great Depression. The N.F.A. was designed to bail out businesses that were, if not too big to fail, then too young to die. It was only in the 1870s that the first large corporations began to appear in the C.N.A. Sobel mentions the North American Steel Corporation, Consolidated Petroleum of North America, Imperial Dry Goods, Thomas Edison's National Electric, and the Grand National, North American United, and Indiana Northern Railroads. When a credit crunch struck the C.N.A. in 1880, and National Electric went bankrupt, it seemed that the rest of the new giant corporations might follow. McDowell responded by creating the N.F.A., which in four years made 354 loans totalling more than N.A. £3.5 million.

But while bailing out large corporations may have been good enough for McDowell, it wasn't good enough for his successor, Ezra Gallivan of the People's Coalition. In his inaugural address in February 1888, Gallivan announced that "new means will be found for the people to . . . share more fully in the profits their work made possible." The new means turned out to be the N.F.A., which would no longer be loaning money to established businesses. Instead, under its new administrator, Julius Nelson, the agency would go into the venture capital business, offering loans to people who wanted to start new businesses, and accepting shares in the newly-founded companies. By 1904, thirty-nine of the hundred biggest companies in the C.N.A. owed their founding to the N.F.A.

However, as Sobel himself admitted, the N.F.A. financed only those individuals who showed an excellent chance of success, ignoring the others. Samuel Frier of the Textile Union claimed that, "The N.F.A. was not supposed to be a money-making operation, but a service to the people. A commercial bank might be pleased to show a failure rate of 13.3%. To us it indicates that Mr. Nelson has not been taking the kind of risks he should. In 1899 the N.F.A. granted 314 loans and financings, nine more than the previous year. Mr. Nelson does not tell us that the N.F.A. processed 2,539 applications and culled the 314 from that amount. What of the other 2,225 men who failed Mr. Nelson's test? These are the people the Governor-General told us were to be helped, and these are the men the N.F.A. ignores." Don't be surprised if a future For All Nails vignette reveals that there's an old joke in the C.N.A. that "N.F.A." really stands for No Funds Available.

The N.F.A. eventually fell victim, not to its own success, but to that of the Mexican industrial monolith Kramer Associates. When K.A. moved its headquarters from San Francisco to Manila in February 1934, the result was a global financial panic that brought about the bankruptcy of the N.F.A. Although the agency was revived in 1950, it never again played its former role as the engine of North American prosperity. By the end of ''For Want of a Nail'', Governor-General Carter Monaghan -- of the People's Coalition -- had disbanded the N.F.A.