Trystan Casey
The Great Depression, which began in 1929, was a period of economic crisis that had a profound impact on various industries and businesses in the United States. While it is difficult to determine if electric companies completely closed down during this time, it is known that the depression led to a significant decrease in consumer demand and spending, affecting the operations of electric companies and other consumer product companies. The stock market crash and the subsequent economic downturn resulted in high unemployment rates, with 25% of the workforce jobless by 1933. This period witnessed a struggle for many businesses, including electric companies, as they navigated decreased consumer traffic and changing market dynamics.
| Characteristics | Values |
|---|---|
| Electric companies' attitude towards rural service | Unprofitable |
| Electric companies' willingness to accept federal government control | Unwilling |
| Percentage of rural homes in the U.S. with electricity in 1935 | 10% |
| Percentage of city dwellers with electricity by 1930 | 90% |
| Year the Rural Electrification Administration was created | 1934-1935 |
| Year the Rural Electrification Act was passed | 1936 |
| Year the Wall Street Stock Exchange crashed | 1929 |
| Year Insull's empire collapsed | 1929 |
| Year Insull resigned and returned to Europe | 1932 |
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What You'll Learn
Electric companies' reluctance to serve rural areas
During the Great Depression, electric companies were reluctant to serve rural areas due to a variety of factors, including economic concerns, technical limitations, and a lack of infrastructure.
Firstly, economic concerns played a significant role in the reluctance of electric companies to expand into rural territories. The Great Depression had caused widespread unemployment and economic hardship, and electric companies questioned the profitability of providing power infrastructure in sparsely populated regions. They believed that the cost of building transmission lines and connecting isolated farms would outweigh the potential revenue generated from these areas. This perspective was understandable given the financial context of the time, and companies prioritized profitability for their owners and shareholders.
Secondly, technical limitations and a lack of infrastructure posed significant challenges to electrifying rural areas. In the 1930s, the technology and infrastructure required for widespread electricity distribution were still in their early stages of development. Building power lines and transmission infrastructure to reach remote locations was a costly and time-consuming endeavor. Additionally, the economics of electric power generation and distribution were still not well understood, further complicating the expansion of electrical services to rural communities.
Moreover, the population shift during the industrialization period, especially following the Civil War, had drawn people towards cities and away from rural areas. This trend continued through the 1920s, with the glamour and appeal of city life. However, as the Great Depression hit, the economic boom turned into breadlines and shantytowns, causing a shift back towards advocating for rural life and a return to the land.
The federal government, recognizing the need to address the lack of electrification in rural areas, took steps to intervene. President Franklin D. Roosevelt, as part of his New Deal programs, established the Rural Electrification Administration (REA) in 1935 to promote and finance the expansion of electricity to rural regions. The REA provided loans and favorable terms to cooperatives and local groups to facilitate the construction of electrical distribution systems. Despite initial reluctance and challenges, the REA's efforts eventually gained momentum, and by the end of the 1930s, electrification in rural America had made significant progress.
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The Rural Electrification Administration (REA)
The REA was a crucial component of Roosevelt's New Deal agenda, which aimed to address the economic woes of the Great Depression. The Great Depression had led to high unemployment and a decline in the appeal of crowded, industrialised cities. Rural Americans were effectively excluded from the economy due to a lack of access to electricity, and power companies were reluctant to invest in rural electrification due to concerns about profitability. The REA addressed this challenge by providing loans to cooperatives and requiring power companies to accept federal government leadership to ensure that all farmers, regardless of income, received electric service.
The REA's efforts to bring electricity to rural areas had a significant impact on the lives and productivity of farming communities. Electrification brought modern conveniences such as refrigerators, toasters, and vacuums to rural homes, reducing the amount of manual labour required for daily tasks. It also enabled the use of electric water pumps, transforming farming practices and improving access to water for both people and livestock.
The REA's work was supported by a dedicated team of mostly female workers who travelled across the country. These women, known as electrification agents, played a crucial role in educating rural Americans about the benefits of electricity and convincing them of its value. They organised events, demonstrations, and contests to showcase the labour-saving potential of electric appliances and shared testimonials from other farm women who had embraced electrification. Their efforts were instrumental in encouraging the adoption of electricity in rural communities.
The impact of the REA was significant and far-reaching. By the late 1940s, close to 80% of U.S. farms had electric service, compared to only 3% in the early 1930s. The REA's legacy continues to this day, with rural electric cooperatives still providing electricity to millions of rural customers. The success of the REA in bringing electricity to rural areas and improving the lives of farmers is a testament to the power of government intervention and the resilience of rural communities.
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Electric cooperatives
During the Great Depression, 9 out of 10 rural homes in the United States were without electricity. This was because power companies believed that providing electricity to sparsely populated areas would not be profitable. As a result, rural Americans were effectively shut out of the American economy.
Recognising the need to electrify rural areas, President Franklin D. Roosevelt established the Rural Electrification Administration (REA) in 1935. The REA was a New Deal public relief program that provided $1 million in federal loans to bring electric service to rural areas. However, investor-owned utilities were not interested in using federal loan funds to serve these areas.
This is where electric cooperatives came in. Electric cooperatives are private, nonprofit enterprises that are locally owned and managed by those they serve. They are incorporated under state law. The first electric cooperative was the Alcorn County Electric Cooperative in northeastern Mississippi, a very economically depressed region with many tenant farmers. Once power lines were extended from the town of Corinth to the surrounding rural area, the cooperative began delivering electricity bought from the TVA at wholesale rates.
The REA approved loan applications from several proposed cooperatives in November 1935. The terms were very favourable to the applicants: 3% loan interest and a payback period of 20 years. Co-op participants could obtain low-interest loans from the Electric Home and Farm Authority (EHFA) for wiring homes and buying electrical appliances. The cooperatives would then buy their power from a private power company, a municipal utility, or the Federal Reclamation Service.
Today, the National Rural Electric Cooperative Association (NRECA) represents over 900 consumer-owned, not-for-profit electric cooperatives, public power districts, and public utility districts in the United States.
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The Public Utility Holding Company Act of 1935
The Act limited holding company operations to a single state, allowing for effective state regulation. It also broke up any holding companies with more than two tiers, forcing divestitures to create single integrated systems serving limited geographic areas. The PUHCA aimed to prevent utility holding companies from engaging in unregulated businesses. It was based on the Federal Trade Commission's investigation of the electric industry from 1928 to 1935 and was a significant development in the nationwide fight between public and private development of electricity.
The passage of the Act was met with strong resistance from holding companies, leading to a prolonged legal battle. On November 26, 1935, the SEC filed a lawsuit against the Electric Bond and Share Company and fourteen other holding companies. Despite initial setbacks, the SEC ultimately prevailed in 1938 when the U.S. Supreme Court ruled in its favour, granting it full authority to enforce the Act. This decision prompted a wave of registrations and exemptions, with 142 holding companies registering with the SEC within three months, representing a significant portion of the electric utility industry.
The PUHCA had a lasting impact on the structure and regulation of the electric utility industry in the United States. However, over time, the industry and prospective utility owners lobbied for its repeal, arguing that it had become outdated. In 2005, the Energy Policy Act was passed, repealing the PUHCA and replacing it with a new set of laws that gave the FERC a more limited role in cost allocation for multi-state electric utility holding companies.
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The stock market crash's role in the Great Depression
The stock market crash of 1929, also known as "Black Thursday" and "The Great Crash", was a major stock market crash in the United States that began on October 24, 1929, and is considered the start of the Great Depression.
The 1920s, known as the "Roaring Twenties", was a period of exuberant economic and social growth within the United States. This era came to an abrupt end in October 1929 when the stock market crashed, paving the way for the Great Depression in the 1930s. The US economy was already showing signs of trouble, with the agricultural sector depressed due to overproduction and falling prices, forcing many farmers into debt. Consumers were also facing low wages and thus low purchasing power. Despite these trends, investors continued to buy shares in areas of the economy where output was declining and unemployment was increasing, so the purchase price of stocks greatly exceeded their real value.
By September 1929, more experienced shareholders realized that prices could not continue to rise and began to get rid of their holdings, which caused share values to stall and then fall, encouraging more to sell. As investors panicked, the selling became frenzied. A record 12.9 million shares were traded on the exchange on October 24, 1929, and some 16.4 million on October 29, 1929, or "Black Tuesday". The stock market crash reduced American aggregate demand substantially, with consumer purchases of durable goods and business investment falling sharply after the crash. This led to a decline in production and employment in the United States.
The stock market crash had widespread and long-lasting consequences for the United States, with nearly every segment of society directly impacted. It altered a generation's perspective and relationship with the financial markets. The Great Depression saw a decline in spending, which led to a decline in production as manufacturers and merchandisers noticed an unintended rise in inventories. This decline in output was also due to a reduction in consumer and business spending. The fall in stock prices also likely generated uncertainty about future income, which led consumers and firms to put off purchases of durable goods.
The stock market crash and the Great Depression formed the largest financial crisis of the 20th century. While some scholars argue that the crash sparked the Great Depression, others believe that it merely coincided with bursting a loose credit-inspired economic bubble.
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Frequently asked questions
Electric companies did not close during the Great Depression, but the 1929 stock market crash caused the collapse of the Insull empire, which controlled electrical service in the Midwest.
The Great Depression led to high unemployment and a lack of interest in creating power infrastructure in rural areas. This meant that by 1935, 90% of rural homes in the US didn't have electricity.
President Franklin D. Roosevelt's administration created the Rural Electrification Administration (REA) in 1935 to provide federal loans for installing electricity in rural areas. The REA also recruited mostly female workers to teach rural Americans about the benefits of electrification.
The REA was a huge success, and by the end of the 1940s, approximately half of all farms had access to electricity. By 1953, rural Americans had gained equal access to electricity as their urban counterparts.
The Great Depression led to energy deregulation, breaking up utilities' control over the energy process and allowing retail electric providers to form and sell energy. This increased competition benefited customers by providing more options and keeping rates reasonable.
