The New Deal in Electrical Modernization

Electrification programs reinforced housing programs. The largest social objective of the housing as well as the electrification programs had been to improve the quality of life for the majority of American households, who lived in dilapidated or substandard dwellings. Roosevelt spoke of the need for new and rehabilitated housing to provide families with the electrical standard of living.

The progressive political tradition envisioned electrical modernization as a major element of the social modernization of the American home. The president wanted the New Deal to break the cycle whereby high private utility rates and high appliance prices prevented mass electrical modernization. Such a policy would create the market that would make lower prices profitable: "The broader the base of consumers of a product that is now classed as a necessity, the lower would be its costs and the greater its stability. A great many years ago Dr. Steinmetz observed that electricity is expensive because it is not widely used, and at the same time it is not widely used because it is expensive.... There is a vicious cycle which must be broken, and a wise public policy will break it." Even the private utilities, against whom Franklin Roosevelt fought his entire political career, recognized the central significance of Roosevelt's vision. Writing about the recently increased residential market for the sale of electricity from privately owned public utilities, Electrical World in 1935 obliquely expressed the new understanding: "The household use of electricity has been so small, however, and the appeal of modern electrical appliances has become so strong and public interest has been so increased as a result of the wide publicity that has grown out of President Roosevelt's enthusiasm for the social benefits that come from electricity in the home that the domestic market has offered immediately possibilities for load building."^[38]

Two major electrification programs directly furthered this social objective: the Tennessee Valley Act of 1933 and the Rural Electrification Administration, established by executive order in 1935 (and the subsequent Rural Electrification Act of 1936, which made the REA a permanently and separately funded agency). TVA initially benefited small towns and farms in TVA service areas; eventually, TVA became an instrument of a broader transformation of Southern society. After presentation of the National Emergency Council's Report on Economic Conditions of the South in July 1938, Roosevelt's conception of TVA shifted. Removing Southern poverty required more than just cheap electricity. Low-wage industries and unmechanized agriculture lay behind the low standard of living in the South. The traditional Southern industrialization strategy of attracting industries by low wages and low costs had not transformed Southern society as a whole. The region needed high-skill jobs to bring higher wages. Higher wages would force Southern industries to be efficient and capable of competing with their Northern counterparts. Cheap electricity and electrical modernization of home, farm, and industry could help if they created skilled manufacturing industries and growth of cities.^[39]

Rural Electric benefited rural households everywhere in the country. Historians generally represent TVA and Rural Electric as the only major New Deal electrification programs, or simply as programs to provide rural households the electrical benefits already available to city households. TVA and REA accomplished these program objectives, but both also had a significantly larger political objective, which included urban as well as rural households. TVA and REA sought by demonstration, competition, and administrative compulsion to force

private utilities, which provided most Americans with their electricity, to extend electrical modernization to the four-fifths of the nation's households that were still unmodernized.^[40]

Roosevelt's vision did not limit electrical modernization to the rural areas of the nation. TVA and Rural Electric achieved stunning successes, but these should not obscure the effort made by other programs to bring electrical modernization to the nation's cities and large towns. These programs are well known:

1. National Housing Act Title I home rehabilitation loans (1934), providing for electric wiring upgrade and retrofit.

2. National Housing Act Title I loans for purchase of major, home electric appliances (1935–1938).^[41]

3. Federal Housing Administration electrical wiring standards in the building codes required for homes to qualify for FHA mortgage insurance.

4. TVA as a "yardstick" in forcing neighboring private power utilities to lower domestic rates. Despite criticisms that no one could give the yardstick idea precise legal meaning, TVA did force down rates by Southern utility companies, for instance, the rates of the Commonwealth and Southern, headed by Wendell Willkie.

5. Electric Home and Farm Authority (established by presidential authority, December 1933). The EHFA assisted TVA in marketing electric appliances to the TVA service area and planned cooperative marketing with private appliance manufacturers. Manufacturers would provide their dealers in the TVA service region with special models of their appliances for sale at lower prices. Households would receive special low rates from the Tennessee Valley Authority or private utilities participating in the plan. Banks would finance the appliance purchases with low rate loans that the EHFA would in effect guarantee with a loan from the Reconstruction Finance Corporation. Administrators intended to demonstrate that even poor households would buy appliances if their prices and the cost of electricity were cheap enough. In August 1935, the administration transferred the EHFA to the Rural Electrification Administration, where it could reach more households with its services. "By 1938 the Electric Home and Farm Authority, a subsidiary of the Reconstruction Finance Corporation, had purchased over 100,000 installment contracts from over 2,500 dealers, spending $15.5 million in thirty-three states."^[42]

6. Farm Security Administration (1937–1946). Henry A. Wallace, Secretary of Agriculture, under authority of the Bankhead-Jones Farm Tenancy Act of 1937, created the FSA to assist tenant farmers and poor farmers to purchase land, improve farms, and recover from natural disasters. From 1937 to 1946, the FSA made 893,000 rehabilitation

loans, assisted 187,272 cases of debt adjustment between farmers and their creditors, resettled 15,000 farmers in 164 projects, and operated 95 camps for 75,000 migrant laborers.^[43]

7. Public Utilities Holding Company Act (1935). This act broke up and regulated holding companies by requiring them to register with the Securities and Exchange Commission (established in 1934) and giving the Federal Power Commission (established in 1920 in the Federal Water Power Act) and the Federal Trade Commission (established in 1914) the authority to regulate interstate shipments of electricity and gas. Although historians generally characterize the PUHCA as a progressive effort at busting corrupt monopolies, the president himself linked the act to the problem of providing lower electric rates and the benefits of electricity to the consumer and to other measures to provide lower electricity rates. According to Ralph De Bedts, a recent historian of the Securities and Exchange Commission, Roosevelt believed "the holding companies ... were directly and indirectly responsible for boosting rates. Their greed made rate reductions impossible."^[44]

8. Public Works Administration loans to municipalities for building public electric systems. By 1935, the PWA had financed 274 public power systems to compete with private electric power. The purpose was to enable municipalities to obtain lower rates.^[45]

9. "Seven Little TVAs." In June 1937, Roosevelt asked Congress to duplicate the TVA in seven other major rivers around the nation, including drainage basin systems of the Great Lakes and the Ohio River, the Tennessee and Cumberland regions, the Missouri and Red rivers, the Arkansas and Red rivers and the Rio Grande, the Colorado River, the Columbia River, and the drainage basins of the rivers flowing into the Pacific south of the California-Oregon border. Senator Norris, who had introduced the original TVA bill in 1933, introduced a bill to accomplish the president's objectives. Progressives hoped to duplicate the success of the Tennessee Valley Act around the United States. This vision of superfederalism died quickly, but its demise did not end the New Deal effort to replicate the TVA. Scaled-down, multipurpose, flood control and power projects, drawing political support from regional needs, succeeded in accomplishing electrical modernization, even if this was not their primary purpose. These projects included the Bonneville Power Act of 1937 that built Grand Coulee dam on the Columbia River in eastern Washington; the Santee-Cooper Hydro Project in South Carolina, and the Loop River Public Power District in Nebraska. Even shorn of TVA's social objectives, these projects served the progressive principle of providing yardsticks to determine the fairness of private power generation in the regions. The post-New Deal dam building era began with the emergency needs of the Second World

War and the Korean War. After the war, President Truman made a last, unsuccessful, effort to revive FDR's plan for more TVAs.^[46]

10. The Electric Home and Farm Authority (1933), the Federal Credit Union Section of the Farm Credit Administration (1934), which acted within the Federal Credit Union Act 1934, the Disaster Loan Corporation (1937), administered under the Reconstruction Finance Corporation, and the Rural Rehabilitation Division of the Farm Security Administration of the Department of Agriculture offered smaller and more specifically targeted loan programs.^[47]

Expansion of private consumer credit to low-income households represented a major New Deal commitment. The Roosevelt administration recognized that, short of outright public subsidization of home modernization, enabling households to obtain credit to modernize themselves represented the most effective tool for breaking down the private utilities' segmented market for modernization. Before passage of the National Housing Act, one of the major constraints on appliance sales, according to electrical industry analysis, had been lack of credit to appliance dealers to finance their long-term loans to customers. Title I removed the "bottleneck" that had impeded passage of credit from large capital lenders, such as the utilities and automobile finance companies, to the dealers. Title I shifted the burden of credit risk from the dealers (whose credit ratings the depression hurt) to the ultimate customers. With the federal government insuring the loans to the customer, the dealer merely acted as a conduit for financing paper. With the risk removed, large lenders were willing to lend to the merchandisers. Large industry credit houses, such as General Motors Acceptance Corporation, General Electric Contracts Corporation, and Morris Plan Bank, and the half-dozen largest commercial banks in the country jumped into appliance lending. Some of these lenders took over the billing and collecting of installment payments for the dealers, substantially relieving them of expensive overhead. Once Title I brought these large credit houses into the appliance credit business, they did not leave. Even when the special provision for Title I insurance on major appliances expired in 1938, the large lenders remained in place, preventing the expiration of this Title I program from undermining the national boom in appliance sales.^[48]

The federal government also liberalized installment credit terms, lengthening the average payback period for consumer durables loans from twelve months in 1929 to twenty-two months in 1938. Lengthening the payback period permitted persons with lower monthly incomes to purchase on the installment plan and thereby enlarged the market for electrical modernization.^[49]

Joseph Coppock wrote in 1940 of the FHA and Electric Home and Farm Authority, "Their importance does not arise from the volume of instalment financing which they have directly facilitated, but from the impetus they have given to a wider use of instalment financing, and the influence they have exerted on

instalment financing practices in general." The National Housing Act's Title I brought commercial banks into consumer installment financing, an area in which they had been unwilling previously to make significant ventures. The federal government forced the liberalization of credit terms, capped interest on loans at a low rate, and generally made consumer loans sufficiently risk-free and enticing that most banks for the first time set up consumer loan departments. Government encouragement of home modernization through guaranteeing bank loans for this purpose represented, in the view of another contemporary observer, "one of the most notable developments in the field of instalment financing during the recovery period." Twenty-five years later, Thomas Juster could write, in his extensive assessment of consumer credit, "The most striking development during this depression decade was the huge expansion of commercial bank participation in the consumer instalment credit market after 1935." Bank holdings of credit paper for automobiles and other consumer durable goods rose 50 percent per year from 1934 to 1941.^[50]

The 1935–1936 Works Progress Administration survey of the budgets of 60,000 families revealed how deeply into the nation's lower income groups these programs expanded short-term consumer credit. Among households with less than $500 income for the year (the lower 16 percent of the nation's families), 15 percent carried installment debt (excluding mortgages). This compared to 32 percent of families with incomes above $1,750 a year (who comprised the upper 24 percent of the nation's families) carrying installment debt. In this survey, the average urban family income was about $1,500 for the survey year. That households with less than $500 income for the year could make installment payments showed that in principle households at all income and wealth levels were capable of participating as consumers in a mass consumption economy. The most immediate effect of liberalization of credit was the national adoption of the electric refrigerator. Nearly all households purchased refrigerators on installment plans. By spring 1940, over 44 percent of the nation's households possessed a refrigerator.^[51]

The National Housing Act changed the relationship between the home buyer's mortgage and electrical modernization, providing the basis for what became called, after 1944, the "complete home program." Before 1935, contractors did not design or build houses to support the electrical standard of living. They built many houses as starters or shells, into which the home owner would bring amenities, appliances, and utilities, as desired. They could sell such dwellings at a lower price. In other words, the home owner would have to acquire the "electric standard of living" through piecemeal retrofit. This practice constituted a major constraint on private sector electrical modernization during the 1920s. The private sector sought to overcome this restraint by a variety of merchandising experiments in the early 1930s. Eventually, the industry came to the opinion that the only way to electrically modernize dwellings, at a standard of complete electrical service with a full set of electrical utilities and devices, would be to sell all electrical appliances to the home owner as an ensemble

under one contract, including installation. Home buyers could then finance the contract by installment payments over a three- to five-year term, so that monthly payments would be low enough to be affordable. Electrical industry spokesmen proposed that the appliance ensemble be bundled with the home mortgage. The marketing strategy was, as the industry came to understand it, to sell the home, not the appliances.

The electrical industry saw several benefits in the plan to merchandise all electric appliances together with unitary financing through the mortgage. First, the plan reduced the overhead costs of multiple, individual sales of appliances and their installation. Second, utilities could tie appliance ensembles to split rate schedules, since the customer's total electric demand would qualify them for promotional rates. Third, the larger companies in the industry controlled quality of home construction and utility and appliance installation. Earl Whitehorne, assistant vice president of McGraw-Hill Publishing Company, which published Electrical World and Business Week, editorially argued to the electrical industry in 1930 that speculative home contractors, who built 65 percent of the nation's housing, were the root of the problem. They built to sell quickly, which meant selling at an unreasonably low price and required that they keep appliance installation to a minimum. The implication seemed clear. Until the industry brought the speculative home builder under control and under standards, the complete electric home had little future. The electrical industry needed regulations to compel this segment of the construction industry to meet its needs. "The fact that electrical men have always been accustomed to sell appliances one at a time to families in old homes has built up an obstructing tradition. The sound suggestion that a complete equipment of all the economically desirable major appliances might just as well be installed, built into all new houses when they are constructed and financed under the original mortgage, has had to fight this precedent." These arguments eventually persuaded the industry. In 1932, the Commercial Section of the National Electrical Light Association—a trade association of electrical manufacturers—voted to promote the complete electrical home plan. Their timing could not have been worse, of course. Selling appliances by selling homes would hardly save the electrical industry during the depths of the depression.^[52]

What the electrical industry could not do, the national government could. The FHA implemented some reforms of the national electrical and home construction industries. Title I of the National Housing Act put the power of federal guarantee behind the strategy of complete electrical modernization of the home, paid off by installment loans of low cost. Ten years later, the FHA and the Veterans Administration housing program tied complete electrical modernization to the amortized mortgage, thereby bringing down the level payment cost of the electrical service, utilities, and appliances. Although Congress did not renew the home appliance provision of the FHA in 1938, the Veteran's Act (G.I. Bill of Rights) in the summer of 1944 built a version of it into the veteran's home loan provisions. Also in 1944, the FHA adopted the policy that, if local custom per-

mitted it, regional FHA offices would approve mortgage loans that extended the mortgage to major appliances, such as ranges, refrigerators, water heaters, and hot air heaters. The "local custom" option gave the impression that the decision really rested on local lending practices or on state law (which defined the parts of a dwelling as real or personal property), but in effect the FHA nationalized policy. Borrowers and lenders seeking FHA-insured loans would lobby state legislatures to revise "fixture laws," which defined what parts of a dwelling were security for a real estate mortgage. The FHA forced liberalization of these fixture laws by permitting the definition of permanent fixtures to a dwelling in terms of the intent covering a fixture or appliance, rather than its physical connection to a house. When seller and buyer agreed that a vacuum cleaner was a permanent fixture of a house, then, for FHA purposes, the vacuum cleaner was fixed to the house, regardless of whether it was physically attached to the dwelling. The standard FHA commitment form (FHA Form 2007), used by all regional offices, provided printed spaces for the inclusion of electrical appliances for purchase through the mortgage. Possibility constituted invitation, and the invitation stimulated political pressure for national conformity. States quickly expanded the list of electric appliances that could be brought under a home mortgage as a part of a dwelling. In 1944, home owners could buy ranges, for instance, under mortgages in forty-two states, refrigerators in forty-one states, dishwashers in forty, garbage disposals in thirty-four, and automatic cycle washers in eighteen.^[53]

In 1945, private electrical utilities, commercial banks, and savings and loans associations rapidly adopted FHA and VA style mortgage lending plans. Home buyers would buy long-term mortgages, paying less for a house, on a monthly basis, than they would pay for rent. From the beginning, they would have an electrical standard of living. Consolidated Edison of New York, for instance, adopted a "completed home" plan in 1945. The company projected that 90,000 one- and two-family dwellings would be built in New York City and Westchester County by 1954. "Defining the 'Completed Home,' Mr. Schofield [Consolidated Edison general sales manager] said it must be well built, good looking, well planned and convenient to care for, be easy to operate, economical to maintain and be financed by the lending institutions as one transaction, including all essential operating equipment." Operating equipment included ventilation and exhaust fans, sink with disposal unit and dishwasher, automatic refrigerator, range with oven control, full automatic washer, automatic freezing unit, ironer, bathroom heater, built-in water connection and electric outlets in garage, automatic garage door lock, automatic opening garage doors, clothes dryer, and combination heating, cooling, and water heating. The National Life Insurance Company, of Montpellier, Vermont, adopted a similar program. National Life Insurance was the first insurance company to lend under the FHA program and became the first insurance company to offer the "Packaged House," financing all electrical appliances as well as the real estate itself. FHA policies made single-lender amortized loans for equipment as well as a house of so lit-

tle risk that even conservative lenders, such as an old line life insurance company, would enter the market.^[54]

We do not have statistics to indicate what percentage of new housing after 1945 represented the ideal "complete packaged home" and what percentage represented "starter homes." FHA historical statistics from 1945 to 1962 do not include the percentage of FHA-insured homes in which electrical appliances and home "operating equipment" were part of the value of the sale transaction. It is likely that immediately after the war most houses did not come fully loaded with complete electrical devices. The immediate postwar housing shortage and the political call for inexpensive houses for returning veterans probably compelled most contractors to build dwellings with the minimum equipment, so that the selling price could be low. Until housing floor size began to increase in the early 1950s, therefore, new houses probably had attached electric technologies offered among utilities (e.g., ambient heating, water heating, ventilation fans, garbage disposal, range), but not a full range of appliances, built in and included in the value mortgaged under FHA or VA contracts. FHA statistics after 1962 show that sellers included the range (electric or gas), garbage disposal, and ventilator fans in home sales, but not the refrigerator, clothes washer, and clothes dryer. Since households had widely adopted the latter appliances by 1947, when the new housing boom began, builders probably found that buyers intended to bring these appliances, which they already owned, to their new houses; therefore their inclusion in the "completed home" would not offer a marketing advantage.^[55]