The Second Wave of Electrification in the United States - Winning a Decisive Battle Against Wall Street and London
On December 21, LaRouche PAC posted Michael Carr’s article “The Third Wave of Electrification has Begun.”
Toward the end of that article, Carr wrote, “As was the case in Lincoln's time, progress depends upon political will and positive government intervention.”
Contrary to the noise too often heard in recent decades, government, provided it is sovereign and serving the general welfare of its citizens, uncorrupted by a financier oligarchy, can get it right, particularly with respect to great projects whose scale is beyond the means of private financial interests. More generally, private sector utilities, in creating a healthy physical economy, work best as a contractor partner with government, especially in the water and power sector.
The best recent example of this occurred during the Second Wave of the nation’s electrification in the Roosevelt Administration. The 1930s, during the presidency of FDR, saw the greatest leap in electrification anywhere in the world before or since.
By the 1920s, electricity was a necessity in every city and town. But rural areas and farms were simply left out. Our story is about why that was the case, and the fight to bring to the 25 percent of the American population who lived on the farms in 1933, the electricity necessary for life in the Twentieth Century.
That fight pitted the cartel-allied private utilities against most of the people of the United States, especially the rural and farm population. Through the 1920s and the 1930s, a series of federal laws and even some state laws regulated the power industry. But right alongside, what were known as “power trusts” of private electric companies emerged, run on the same monetarist ideology upon which hedge funds and derivatives operate today-- “how can we loot and steal using this new development called electricity?” These privately owned, and increasingly Wall Street-controlled trusts, were not motivated by the idea of how to use the power of electricity for the development of the nation. For these trusts, and the criminal banks that controlled them, it all came to an end with the crash of 1929, in which these power trusts were a key element of the speculation and debt that collapsed.
Unregulated Private vs Public or Regulated Power
Even before the turn of the century, leaders motivated by an idea of the general welfare and the future, had created municipal power systems owned by the people and their governments. One of the first was in Tacoma, WA. Seattle soon followed. Hundreds of cities and towns across the nation followed suit. The principal intent of the municipal or public power systems, was to serve everyone in each area at a low uniform rate. That is, like the “postage stamp” rate–where no matter how far your letter is to travel, the cost is the same.
The unregulated private power companies were opposed to the public systems, since to compete in municipal power, they had to lower their rates to that of the public system. For example, when Seattle City Light was founded and charged five cents a kilowatt hour, the nearby private utility company, Puget Power, was forced to lower their rate from 20 cents a kilowatt hour to match that of Seattle City Light. Did those private electric companies complain? Yes, they did, and it is the same old tired refrain that is sometimes heard today. They said that the public power people were anti-American and opposed free enterprise; that public power was socialism, or even communism.
While the 1929 crash exposed some of the criminality of the bankers and the trusts, it was not until Franklin D. Roosevelt became President in 1933 that the power of Wall Street was seriously broken. When he was inaugurated on March 4, 1933, he faced the most serious breakdown and panic that the nation had ever experienced. For two or three months before inauguration day, as people lined up to take their money out of the banks, those banks closed their doors, causing even more panic. Roosevelt's inaugural address is famous for one line, “So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”
The New Deal: A New Platform of Development
FDR changed everything. His New Deal not only saved the country from a catastrophe--like that which Germany slid into, also in 1933, with the establishment of the Hitler dictatorship--but moved the nation to a new platform of development. His entire policy must be seen as a conscious determination to transform the relationship of man to nature, where man is less and less a subject of nature's violence.
FDR unleashed a massive infrastructure building-program, using a credit mechanism modeled on Alexander Hamilton, with agencies such as the Reconstruction Finance Corporation (RFC), the Works Progress Administration (WPA), and the Industrial Recovery Act (IRA), The leading elements of that policy would be power and irrigation.
Seven Key Elements of FDR Policy
First, he had to get control over the criminals of Wall Street and bust the power trusts. In a series of acts and laws from 1933-1937 he did just that. These included the following:
1933 Emergency Banking Act and Glass-Steagall
1933 The Tennessee Valley Authority Act
1934 The Securities and Exchange Act
1935 The Public Utility Holding Act
1935 The Federal Power Act
1936 The Rural Electrification Administration
1937 The Bonneville Project Act
In these acts, FDR and Congress declared the furnishing of electric service to be a public good; to be controlled and regulated for the general welfare of the nation. In addition, FDR and Congress saw it as their responsibility to provide electricity to every home, business, and farm in the nation.
The increased demand for electricity through the early decades of the last century necessitated an explosion of dam building to generate it. And it was during the administration of FDR that that explosion became bigger than ever.
While dam projects to produce the electricity the nation required immediately and for the future broke ground as early as the summer of 1933, it would be two years before decisive legislation was passed to put a nail in the coffin of the power trusts, and rapidly unleash much broader distribution and consumption of electricity. Among the hydroelectric projects quickly begun that summer was the completion of Hoover Dam, the breaking ground for Grand Coulee Dam, and the Tennessee Valley Project. Many more were soon to follow.
The first step of serious regulation of the power trusts, and more generally of electricity, was the passage of the Public Utility Holding Company Act of 1935, a U.S. federal law giving the Securities and Exchange Commission authority to regulate, license, and break up electric utility holding companies. This was signed into law by President Roosevelt on August 26, 1935. It limited holding company operations to a single state, thus subjecting them to effective state regulation.
The second step by the FDR administration was amending the 1920 Federal Power Act, otherwise entitled the Federal Regulation and Development of Power. Its original purpose was to more effectively coordinate the development of hydroelectric projects in the United States. It called for reasonable, nondiscriminatory, and just rates to the consumer. It also ensured that 37.5% of the income derived from hydroelectric power leases given out went to the state in which the dam was built. In 1935, the law was renamed the Federal Power Act, and the regulatory jurisdiction was expanded to include all interstate electricity transmission and wholesale power sales.
The Rural Electrification Act, beginning in 1935, brought electricity, for the first time, to farms and rural towns. At that time, outside of tractors and combines, life on the farm was no different than it had been 100 years earlier. Ninety percent of the farms in the US had no electricity. Compared to other nations, that was a shocking statistic. France had electrified 95% of its farms; Japan had electrified 90%. In Denmark, 85% of the farms had been electrified.
Why was the percentage so low in the US? Because the private power companies would not run the lines to rural areas unless the farmer paid the entire cost (at $1,500 per mile) and paid an electric rate based on distance from the power source. That would be thousands of dollars per farm. In 1936, most farm families had an annual income of a few hundred dollars. Municipal systems were prevented by law from serving the farms.
In truth, the private power companies did not give a damn. In July 1935, a group of utility company executives even wrote a report in which they claimed, “that there were very few farms requiring electricity for major farm operations that are not now served.”
The REA provided federal loans for the installation of electrical distribution systems to serve isolated rural areas of the country. That included dams for a power supply, transmission lines, and the electrical connection to individual farms and rural businesses.
Farmers and others established cooperative electric power companies, many of which still function today. These member-owned cooperatives purchased power wholesale and distributed it to their members.
Life on the Farm Before Electricity
Think about life on the farm in 1936, without electricity. Life and work for most rural Americans in the 1930s was fixed in a cycle of hardship and drudgery. They lived and worked in a dark and powerless land.
There was no running water in the house or barn. No flush toilet. Water was pumped by hand and hauled to where it was needed. The average farm family spent 240 hours per year pumping and hauling water.
No electrical machinery. No saws, grinding wheels, pumps, milking machines, or dozens of other electrical tools.
With no refrigeration for food and milk production, spoilage was a common problem. The typical dairy farmer would lose a significant portion of his milk.
The farm wife would wash clothes with a scrub-board. Of course, there were no electrical appliances. Wood stoves for cooking and heat were the norm, which meant many hours chopping wood. No lighting in the house or barn. Students had to study by kerosene lamps.
But then in 1936 came the REA. Immediately, the countryside began to light up. Farmers would get together and form a “coop.” The coop would apply to the REA for a loan to pay for not only running the lines to the farms and hooking them up to a power source, but also to buy appliances and machinery to use the electricity. The REA charged the coops 2% interest. More than $410 million was lent in the first ten years, with the funds coming from the Reconstruction Finance Corporation. Herbert Hoover used the RFC to bail out banks, but under FDR it funded not only the REA, but dam building, industries and more.
Within five years, 30% of the farms had electricity. By 1952 it was 90%, and by 1960 it was 99%. This was the most successful and massive electrification project anywhere in the world. The REA got every penny it loaned to the coops back, plus some. Over 98% of the loans were fully repaid.
REA crews traveled through the American countryside, bringing teams of electricians along with them. The electricians added wiring to houses and barns to utilize the newly available power provided by the line crews.
The private power companies were not idle during this process. They did everything they could to sabotage the REA program. They waged court battles and tried to bribe farmers by hooking a few up and making it impossible to form a coop in the area. They even sent crews out to tear down coop lines and poles.
What the REA Accomplished
What did the REA accomplish for the economy, in addition to bringing millions of farm families into the Twentieth Century?
Farm productivity leaped. Hundreds of hours spent hauling water, chopping wood, milking by hand, and so on, now were used to plant and harvest crops. Tens of thousands of appliances produced by private industries were purchased by farmers, thus aiding the economic recovery. The REA used fairs, extension agents and other means to teach the farmers the more than 200 uses of electricity on the farm.
Imagine a rural schoolhouse with no electricity; or small towns with no lights; or gas stations with hand pumps. All these now were electrified.
The REA engineers lowered the cost of stringing lines to below $1,000 per mile and developed entire new technologies to increase the efficiency of entire systems.
It freed up manpower from farm work that was especially critical as the United States went into World War II. These farm boys entered the military and the industries producing the war materiel. The increased farm productivity provided food not only for the US military, but for half of Europe.
In Tennessee, a farmer who got his lights in the early 1940s, rose one Sunday at church to bear witness: “Brothers and sisters, I want to tell you this. The greatest thing on earth is to have the love of God in your heart, and the next greatest thing is to have electricity in your house.”
Still the battle between the American System’s development perspective and the destructive impulses native to the financier oligarchy continued. After June 6, 1944, D-Day, there was no question now that the war would be won. The British Empire began to move against FDR. Truman was forced onto the ticket for the 1944 election as FDR's Vice-Presidential candidate. Never again, they had resolved, would they allow anyone like FDR to become President of the United States.
The pigs of Wall Street also went into action. The U.S. Chamber of Commerce sent letters to 1,600 local Chambers asking them to endorse resolutions condemning government transmission lines for federal power projects, and demanding the repeal of the Federal Water Power Act. The letter also attacked the Tennessee Valley Authority as “the most significant departure from the long-established American way of life.” These were the first steps in deregulating the national electrical grid while creating regulations based on environmental myths which stifle new technological development—the ridiculous situation in which this nation finds itself today.