A Free-Market Energy Blog

FDR’s New Deal with Energy: Part V (Rural Electrification)

By Robert Bradley Jr. -- January 15, 2019

“The private sector’s push for rural electrification would be forgotten as electrifying the countryside became a political issue during the New Deal, specifically with the creation of the Rural Electrification Administration in 1935.”

– Robert Bradley, Edison to Enron: Energy Markets and Political Strategies (2011), p. 165.

“Next to their ability to pump water mechanistically, small wind turbines are best known for their ability to generate power at remote homesteads…. During the 1930s, when only 10% of U.S. farms were served by central-station power, literally hundreds of thousands of [“home light plants”] were in use on the Great Plains…. [This industry] collapsed quickly after the introduction of electricity by the Rural Electrification Administration during the 1930s.”

– Paul Gipe. Wind Energy Comes of Age (1995), pp. 125, 131.

The New Deal’s policies toward oil and coal in the 1933–39 era were hardly succeeded from anyone’s perspective. Federal bureaucratization could only hamper the market adjustment process needed to align (over)supply to demand with these mineral energies. Wage rates, too, had to be realistic given industry conditions and a large deflation of general prices.

With Herbert Hoover’s interventionist response to the stock market crash of 1929, the ‘first New Dealer’ set the stage for failure and a turn to FDR’s New Deal. President Hoover, summarized Robert Murphy, made the Depression Great by propping up wages, restricting international trade, and elevating tax-and-spend. A Depression that should have been over in 1930/31 kept going …. and going … and going.

New Deal advocates (apologists?) scarcely talk about oil and coal policies. They proudly refer to FDR’s rural electrification initiatives beginning with the Tennessee Valley Act of 1933 and continuing with the Rural Electrification Administration in 1935.

FDR as Hero View

FDR was the hero of the home, according to Ronald Tobey, author of Technology as Freedom: The New Deal and the Electrical Modernization of the American Home (1996):

The New Deal sought to make the ownership-occupied, electronically modern dwelling a major asset for lifelong security for all families, protecting them from the ragged wind of capitalism’s uncertain wage labor market (p. 6).

In Tobey’s telling, US utilities had largely completed their rural reach in the 1920s, leaving the middle and lower classes outside of populated areas underserved. Compared to one-fifth of the nation’s homes being electrified before the New Deal, by 1955 three-fourths of homes were so modernized thanks to the New Deal’s beginnings that would flower during and after the War World II.

“As a national revolution of social modernization,’ Tobey concludes, “electrical modernization resulted directly from the New Deal’s transformation of the nation’s homes.”

Another View

A rejoinder to this view can emphasize several points:

  • A chronology of the electricity industry since the late nineteenth century (a half-century before the New Deal) indicates steady progress and tremendous growth relative to competing energies for lighting, cooking, heating, transportation, and other services. The well-chronicled story of Samuel Insull (see here and here) speaks for itself.
  • Rural electrification, free-market style, was launched in a compelling way by Insull’s 1910 Lake County Experiment, which became the basis of Public Service Company of Northern Illinois (see post tomorrow). This beginning led the integrated utility industry to (economically) expand from the suburbs to outlying regions in the next years and decades.
  • A distributed power industry based on micro-wind was well established on farms by the early 1930s, offering an alternative to not-yet-available utility service.
  • Private, economics-based rural electrification–both distributed and utility-connected–was taken over (crowded out) by FDR’s federalization.
  • Federal subsidization of rural living discouraged self-help decisions to locate based on energy opportunity. The same subsidies came from taxpayers, lowering their wealth to use electricity.

Displacing Self-Help

By the early 1930s, about 10 percent of rural locations were served with grid electricity. Another 15 percent, or about 800,000 locations, self-generated power from a wind turbines with storage (at a cost between $830 and $1,030). This burgeoning industry was decimated by the REA’s subsidized program (estimated to cost about $950 installed). A wind industry source complained:

The aggressive REA program pitted neighbor against neighbor and insisted that any farm or wind electric plant equipment was removed or made inoperative for bogus “safety” reasons. In the process, REA destroyed an entire industry of more than 170 primary manufacturers and several hundred secondary manufacturers, plus sales and service organizations, which operated successfully and even grow in a vibrant free market during the Great Depression. Along with the losses of tens of thousands of jobs, the small town manufacturers and retailers disappeared and energy dollars flowed out of these towns to the electric power monopolies in the urban centers.

The “problem of rural electrification,” the above analysis ended “was already being solved in a classic free-market environment, especially in the most remote places.” (Solar panels were not yet in commercial operation.)

Another wind enthusiast provided this account.

The American windmill industry continued to grow in the early twentieth century, until other sources of power invaded the prairies.  In the 1920s, companies began to develop wind-powered electric generators.  By the 1930s, the death knell was sounded for wind machines of both the water-pumping and the electric-generating variety [by] the Rural Electrification Administration (REA) [which] . . . provide[d] federally subsidized power to America’s farmers in regions remote from privately financed power plants.

– Wilson Clark, Energy for Survival: The Alternative to Extinction (1974), pp. 523-24.

Conclusion

The Great Depression itself–an unintended consequence of government intervention in the name of promoting recovery–slowed the market’s natural progress to electrification, which went from the cities to the suburbs to nearby farms–and out from there. A micro-wind industry was the energy-of-choice pending the “high wires” from the grid.

Ironically, FDR’s New Deal squashed the remote turbine/battery business in favor of (coal-fired) central-station power. Is the New Deal that Green New Dealers aspire to?

 

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