Tva: An American Invention

by DAVID E. LILIENTHAL

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THE perennial speculation, “Is America moving to the Right or the Left?” has little meaning in these days. The struggle for leadership is more accurately described as between those having opposite temperaments and outlooks on life: between the fearful and the confident; between those whose impulse is always to “sit tight,” to “wait and see,” and those who are by nature innovators and explorers.

The unimaginative and the fearful have always been able to prove by “common sense” and cleverly contrived statistics that almost anything new and vigorous is “unsound,” “impossible,” “visionary,” and “wasteful.” Their voices come down through the years:—

“Encourage the building of transcontinental railroads? Why, we already have adequate transportation in our fine stagecoach and turnpike companies; railroads would impair these splendid investments.” “The horseless carriage is an interesting hobby, but of course it will never be practical. And to use public funds to provide paved roads for them to run on will upset the buggy-whip and surrey-fringe industries.”

“Operate the steel mills on less than a seven-day work week of twelve hours daily! Dangerous nonsense! This is a matter to be left to the judgment of practical men.”

“Henry Ford is a crackpot. Any practical businessman can tell you that you can’t pay men five dollars a day, sell your product at low prices, and stay in business. Ford’s notion that there is a market for millions of cars is insane.”

“This proposal to build up the Tennessee Valley through TVA is impracticable and idealistic. What’s the matter with the way things are? Floods? But if TVA’s new plan for holding back the water by dams were any good it would have been used long ago by those whose job it is to know about such things. Besides, if floods can be controlled that way, who will look out for all the loyal contractors who have done such a good job building the river levees higher and higher after each big flood — and what will we do without the contractors’ campaign contributions? As for making electricity out of flood waters, as TVA proposes, there is already a surplus of electricity. None on the farms? Yes, but farmers wouldn’t use electricity if they had it.”

And so on and on.

When the country has followed the lead of those who always cry, “Don’t try anything new,” American life has generally been dull and regressive, an arid stretch of holding on to what we had. When the vigorous and creative have set the pace, we have been a fresh, stimulating, confident nation. Under their leadership, Americans pushed their way down the Ohio and up the Missouri to new lands, built on a huge scale, took chances, started new enterprises, had unlimited confidence in themselves, welcomed new ideas in business, in education, and in government.

The country is today experiencing a creative period that might be compared with the great westward push of a century ago. There are many illustrations, in private and public enterprises, but perhaps the best-known the world over is TVA. A leading Republican Congressman, who initially was strongly opposed to the TVA, writes me: “You may be interested in knowing that of all the things about which people in authority made inquiry during my sojourn in twenty-one countries, the most frequent was concerning the TVA.”

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THE TVA is in the tradition of a vigorous, pioneering America. This explains, I think, why TVA is now so generally accepted as an American accomplishment, without regard to political party affiliation or the labels of Left and Right; why the application of the TVA idea to the great Missouri Valley and other regions receives the editorial approval of both the “conservative” New York Times and the “radical” PM, of Collier*#39;s as well as the New Republic, of both Joseph Patterson’s New York Daily News and Marshall Field’s Chicago Sun.

Perhaps it is because America is in one of her most lively and vigorous periods that what is going on in the Tennessee Valley has so stirred the country’s imagination and our creative, affirmative instincts. It is in keeping with this inquiring, adventuresome spirit that a once remote valley is being explored from end to end by men and women from the valleys of many American rivers: the Columbia, the Arkansas, the Missouri, the Connecticut, the Delaware, the Savannah.

These visitors and observers include farmers, public officials, manufacturers, state legislative commissions, labor leaders, newspaper and magazine editors and writers, utility executives, merchants. They are by no means casual sight-seers. They come because they are concerned, not about the development of this region particularly, but about the development of their own. “This TVA is a new idea,” they say, “a new way to get things done. We are here to see the results for ourselves, to check the facts, to talk to the Valley’s people.”

One of our recent visitors was Mr. W. E. Pearson, President of the First National Bank of Lovell, Wyoming. He had heard TVA denounced by the power companies and their allies. Maybe TVA was as bad as they said, but he wanted to see for himself. It might be that the TVA idea “had something” that would be useful for the Missouri Valley; perhaps an MVA — a Missouri Valley Authority — was the thing his valley ought to have. So he came to the Tennessee Valley to find out. On his return, Mr. Pearson made a report to the people of Wyoming by radio, from which I quote excerpts: —

“. . . I was told TVA was a radical, socialistic experiment; that it was a further move to centralized government and to government by bureaucracies; that it was another way of substituting government enterprise for private enterprise. If all these things were true, naturally, as a lifelong Republican, I was against it.

“So when I went over the TVA and for a couple of weeks talked with farmers, businessmen, state extension workers, and others, I was continually looking for the wild-eyed, long-haired, impractical type, for socialistic experiments. . . .

“Here is what I found: The TVA has been administered in a sound manner. Their power program is operating in the black and on a basis that will repay to the nation within thirty to sixty years the entire cost of the power development, which is the major item in the cost of TVA. There have been experiments, naturally, but I would class most of them as hardheaded experiments, and God help us when we quit experimenting and throw up our hands at every new idea. . . . I did not find any encroachment on private business other than in the public utility field, and that is nothing new; we have had the government producing power at the Shoshone Dam near Cody for thirty-five years, and municipal power plants are certainly nothing new. In fact I found that they leaned over backward to keep from encroaching on private business. . . .

“I do not regard the plan as a trend towards socialism; rather it appeals to me as a change in the administrative setup of a large number of government bureaus that needed to have their activities tied in together by a decentralized management more familiar with the problems of the region than Washington bureaucrats. . . .

“If we conclude we don’t like the MVA, we should pick out the flaws in the present development setup, because there is no fooling about what TVA has done for its region or what MVA could do for us. And finally, when we analyze it, let’s not get sidetracked on vague generalities, nor be afraid of a new idea that has proved its worth.”

What do these observers see as they go up and down this Valley region?

They see five million Americans making headway, in the best tradition of a vigorous, creative people. They see a region nearly as large as Great Britain, in which the dominant note among the people on farms, in towns, and in cities is a renewed belief in themselves. “We can write of TVA’s great dams,” says one Valley leader, “of the building of homegrown industry and of electricity at last coming to the farms of thousands of farm people in the Valley. Yet the significant advance has been made in the thinking of a people. They are no longer afraid. They have caught the vision of their own power.” This is not mere rhetoric; the Valley’s people are “doing something about it,” planning, organizing, “ starting something,” working vigorously at the day-by-day job of developing their region. As a consequence this valley has undergone great changes until it has become one of the most rapidly developing regions in the country.

What has been TVA’s part in this change that has aroused the energies and pride of so many of the Valley’s people and the imagination of people in other parts of the world?

An adequate answer calls for a wealth of specific and illuminating details, not possible in this brief article. It can be said, however, that the people of the Valley, and not TVA’s forces, have done most of the job; that TVA has given impetus, provided some focus, and — with capital furnished by the whole nation — supplied many of the technical tools that have so long been lacking, for the development of the Valley’s resources. That is what I understand Congress intended TVA to do when it was created in 1933: to develop or to aid in the development of all the natural resources of this region.

Those resources are the same in the Tennessee Valley as in every other valley the country over — or the world over, for that matter. They are: the rivers and streams; the land; the forests; the minerals.

It is upon these same resources of rivers, land, forests, and minerals that the people in every valley of the world depend for their economic progress. TVA, then, is preoccupied with a problem that is not confined to the valley of the Tennessee, but is universal: namely, how can the energies of men and the lessons of science and organization be most effectively applied to the resources of nature for the moral purpose of increasing human opportunity?

The evidence of change is everywhere in the Valley: —

1. New industry, ranging all the way from hundreds of new smaller plants engaged in woodworking, food-freezing, flour-milling, and so on, to the largest aluminum rolling mills in the world and the giant atomic-energy works at Oak Ridge, Tennessee.

2. New markets in a hundred lines, for electric appliances, farm machinery, clothing, juke boxes, paint, oranges, automobiles, boats, fishing tackle, and so on.

3. Better farming, stronger soil, new pastures, less soil erosion, more private forests and woodlands harvested scientifically, extensive reforestation.

4. A river and its five tributaries now man-controlled. 5. Varied mineral development, based on technical research.

6. Re-energized interest in local and state affairs, evidenced in the establishment of local planning commissions, state parks, conservation commissions, power boards, and in advances in public health (malaria is well on its way out) and education.

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THE development of the river by TVA is the bestknown aspect of the work. By a series of dams designed, built, and operated as a unit, this resource has been changed from a liability to an asset. This job, now about complete, is the largest planning, engineering, and construction job ever undertaken by a single organization. To harness an entire river that flows through seven states and affects the lives of millions is, an undertaking so huge that only the nation’s government can undertake it.

As a result of a decade of work by TVA the Tennessee River through its course is under the control of man, the first river of which this can be said. The level of water in huge lakes behind twenty-six dams is raised or lowered almost as precisely as a scientist controls the level of liquids in a measuring vessel on his laboratory table. One more thing the unimaginative said couldn’t be done has been done.

These TVA dams are designed to be versatile rather than one-track. By their control of water they provide several benefits: (1) a new deep waterway, 650 miles in length; (2) a measure of flood control that is without precedent; (3) a chain of lakes of great beauty, notable for fishing and boating; and (4) a great new store of electrical energy, produced by putting otherwise wasted waters through water wheels. TVA in the fiscal year 1945 was the largest producer of electricity in the country. This is the only resource of the river that is sold for dollars — sold in 1945 to 137 locally owned and locally managed power distributors in seven states, to industries, to utilities, and to the War Department, for a total of about $39,000,000. (I know of no way of putting a dollar sign on the value to the United States of having vast amounts of TVA power available when it was desperately needed for the atomic-bomb plant and for aluminum expansion, in almost unbelievable quantities and on very short notice.)

Even greater than the river as a resource is the land; its development is a still more difficult task.

TVA did not “engineer the land” in the way it built a controlled river. The change in the land has been the result of the decisions and actions of tens of thousands of individual farmers and their wives, participants in a wholly voluntary program, a program built on technical research and a community educational method, sponsored by TVA, known as the “test-demonstration farm.” These farms are not public show places, but actual working farms, small and large. They are community schoolrooms, in effect, where farmers have learned and have taught their neighbors — the practical uses of what scientists developed in the Valley’s laboratories and plants.

Technical research and its application have been a vital part of the developmental work of the TVA and of its coöperating agencies: research in new and improved kinds of phosphatic fertilizers to restore soil fertility; improved farm machinery, such as an inexpensive barn hay-drier or portable thresher; research in many fields — forests and minerals included — where men, in their efforts to make the most of their resources, need the aid of science.

Much indeed remains for the people to do in the physical improvement of their valley. They realize this. TVA is acutely aware that only a beginning has been made and that the hardest part lies ahead. But all except the willfully blind can see that great headway has been made, and that it is continuing.

Americans love a good argument. The cracker barrel is a genuine symbol of our life. Here, too, the TVA measures up to good American tradition, for it has been a center of controversy for a good many years. Those attacks on TVA continue today, spearheaded by the electric utilities industry. Chief among their allies against TVA methods are the direct beneficiaries of the older and contrasting methods of “piecemeal” (and often baldly pork-barrel) development of resources.

In its inception the argument against TVA was the one invariably made against any new and vigorous and challenging project: “It can’t be done.”

That was the theme of those who attacked the fledgling TVA. “It is impossible,” they said, “to develop a whole river as a unit as TVA proposes; impossible to combine flood control, navigation, and power in the same dams; impossible to keep politicians from taking over the management of TVA.” There were other gloomy predictions: “Private business in the Tennessee Valley will stagnate. No new business will ever enter the valley because businessmen fear any such public venture as TVA. The neighboring private utilities can’t reduce their rates drastically; if they do they will go bankrupt.”

Today the chant that “it can’t be done” has had to be abandoned; the argument, has been shifted, for the impossible things did happen, and none of the predicted catastrophes has come off. The whole river has been developed. Floods have been controlled by dams that also produce navigation and power. Politics, everyone agrees, has been kept out. Every bit of TVA’s electricity was sorely needed, before the war as well as during it. Private business has grown by leaps and bounds in the Tennessee Valley and continues to grow. The private utility companies in the region neighboring TVA felt it necessary to follow the example of TVA’s low rates, and to their surprise and qualified delight they find that drastic rate reductions have left them in excellent financial position.

The Alabama Power Company and the Georgia Power Company have refinanced their securities at lower rates of interest, and under “ruinous” reduced electric rates are earning such profits that last year they gave their consumers free electricity to the tune of over a million dollars. The fact is that today such private companies as the Madison (Wisconsin) Gas and Electric Company and the Cincinnati Gas and Electric Company, for example, charge electric rates that for a substantial portion of their consumers are as low as the yardstick rates charged by TVA’s local distributors; and still they earn large profits and have paid large excess profits taxes. As they get over their timidity and pride of opinion, other utilities will do likewise, with similarly favorable results.

An ounce of such results is worth a ton of statistical alibis.

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MOST of the old arguments having dissolved in the face of performance, the attacks on TVA fall back on another time-honored device of negative minds: that of cleverly pushing figures around in an effort to pin the tag “failure” on an American achievement.

Some examples of this figure-juggling method are found in an article in this issue of the Atlantic Monthly by the President of the Edison Electric Institute (the electric utilities trade association), Mr. C. W. Kellogg. I shall not take space to dissect all his “statistics”; a few will suffice. (The same figures have been set to folksy dialogue in a recent book, Uncle Sam’s Billion Dollar Baby, by Frederick Collins.)

Mr. Kellogg’s article seeks to establish that TVA has operated at an enormous deficit. Now to make this point is quite an undertaking, for the financial reports of the TVA (as certified by the independent accounting firm of Lybrand, Ross Brothers & Montgomery) tell a quite different story. The report for the fiscal year ending June 30, 1944, for example, shows a gross power income of $35,429,000, and a net operating power income of $14,737,000, a 4.1 per cent return on the average net investment devoted to electricity operations; for the fiscal year 1945 the figures are about $39,000,000 of gross and over $18,600,000 of net income, a return of more than 4¾ per cent.

But to turn TVA’s net power income into monumental deficits is really no trick at all for Mr. Kellogg. He simply charges anything and everything against power income. Nothing could be simpler — or more unfair and misleading. The planting of trees or scientific aid to forest owners — charge it to power. Munitions research and development (an important part of TVA’s work before and during the war) — call that a charge against power, too, while we are at it, says Mr. Kellogg; it makes the “deficit” look better. Soil conservation, flood control, navigation — what does it matter if elsewhere in the country these same activities are normal expenditures of government? — all are pitched in as deductions from TVA’s net power income in order to create an ersatz deficit.

It is this kind of sleight of hand with figures that undermined public confidence in the utility industry in the Insull period. Everyone knows that soil conservation expenditures by the Federal government are not charged against electric consumers anywhere else in the country; there is no reason why they should be paid for out of electric rates in the Tennessee Valley. The same is true of navigation: the hundreds of millions of Federal dollars invested in navigation dams on the Ohio and Mississippi have never yielded the Federal government a dollar of money income. No forthright person would ask that the research work of the Department of Agriculture or of the Army’s Ordnance Department, or TVA’s comparable expenditures, be charged against electric power rates.

By the Kellogg method any enterprise, however sound, can be made to appear bankrupt. Take the city of Knoxville, Tennessee, for example, which operates its own electric distribution system. Last year, after all expenses, including depreciation, and local, county, and state taxes that were substantially larger than those paid by its private company predecessor, it had a net income of $789,000. A fine showing; enough in one year to retire over one eighth of all the local revenue bonds issued to finance the system. But given Mr. Kellogg’s determination to dream up a deficit, it is easy to change that to a sorry financial picture. All you need to do is to charge against this net power income the cost of running the city’s schools, the libraries, the fire department, the police department, the municipal golf course, the city hospital, and any other services — and lo! the electricity operation is a flop.

The utilities for whom Mr. Kellogg speaks are not content to let this obvious unfairness rest here, bowever. While they are creating deficits for TVA, they are out to make them big. So Mr. Kellogg proceeds to charge against the power program interest on TVA’s expenditures for forestry, for munitions development, for navigation, for flood control, and on all the other nonpower capital items of the TVA! Because the rates paid by electric consumers in the Tennessee Valley do not cover interest on forestry, soil conservation, navigation, and other items, he charges that the Valley’s power is subsidized! Now, really, Mr. Kellogg!

Mr. Kellogg resorts to the same sort of statistical shenanigan when he discusses taxes. Though TVA does make large payments in lieu of taxes to local taxing agencies, TVA pays no Federal taxes, being wholly owned by the Federal taxpayers themselves. The private utilities, however, pay large Federal income taxes. This difference, among others, Mr. Kellogg asserts, accounts for the lower TVA level of electricity rates as compared with the average of the private companies.

But half or more of the utilities’ Federal taxes are on excess profits. It seems a quaint way to justify the fairness of these private company rates, when compared with TVA schedules, to point out that in the last three years private company rates were so high that they yielded $531,000,000 in excess profits taxes — $210,000,000 last year alone!

Mr. Kellogg also fails to point out that, whereas through Federal income tax payments part of the utilities net income belongs to the Federal taxpayers, all of TVA’s net income belongs to them. Last fiscal year 47 per cent of TVA’s gross revenues from power was net income, and every dollar of that net income belongs to the people of the country. Whether it is called “income tax” or “profits” or “interest” is a matter of words; it is still millions of dollars of income that is owned by the taxpayers of the United States.

To date, this net income totals more than $60,000,000, and experience justifies the estimate that in less than thirty years the valley’s consumers of electricity will have thus repaid out of net income the total investment in power, after which time the country will continue to own a power system netting from $10,000,000 to $15,000,000 annually. If bonds at 2 per cent were issued against this power investment (not against tree nurseries or munitions plants, Brother Kellogg!), those bonds could be retired in less than sixty years, the country continuing to own the properties after that time and receiving its total net income.

This financial picture is all to the good, but it is largely beside the main point. For TVA is not a commercial enterprise. It is not merely a power project. Consequently most of the utility attacks upon it (and most of Mr. Kellogg’s article) are monumentally irrelevant to TVA’s real meaning, which is as a development agency.

Why the electric industry has permitted itself to fall into the role of the Nervous Nelly of American business, I cannot understand. Why has that potentially aggressive and energetic undertaking become so cynical and colorless and unimaginative — as reflected in such revealing passages of Mr. Kellogg’s article as those in which Grand Coulee Dam, one of the greatest structures ever reared by man, becomes merely a “shakedown” and the proposals for an MVA are dismissed as “this craze”?

Does anyone believe the country is in a mood to listen sympathetically to the professional quibblers, the petty, the fearful? These are heroic days. This is a time for the making of great plans, the doing of great deeds. The development of our river valleys and their resources, as the next great step forward in American life, appeals to the vigorous, hardy, and creative impulses of a people who stand at the threshold of an era of building.

Once more the conflict is on — the contest between the vigorous, the imaginative, the confident, on the one hand, and the tired, the complacent, the fearful, on the other. Will it be necessary within our time for another crisis President to rise before a prostrate country to assure us that “the only thing we have to fear is fear itself”?

R. KELLOGG REPLIES

MR. LILIENTHAL’S article contains three points that deserve comment.

The first is the intimation that the electric utility industry is unprogressive and disposed to discourage new developments. The achievements of the industry throughout its history, from Thomas A. Edison s world-famous inventions to the recent completely successful powering of the huge war industry effort, should be sufficient answer to this disparaging observation. The companies supplied 85 per cent of this war power. In energy, imagination, technical skil, and progressiveness, the story of the power industry is in the best American pioneering tradition and ranks in the forefront of America’s great industrial achievements.

Its accomplishments were made by citizens without government aid. In fact, it pays toward the support of government nearly twice as much as it pays in dividends to its stockholders, common and preferred. True, it cannot engage in popular philanthropies to the extent that a politically managed agency, which has been allowed to slough off all its heavy interest charges onto the public debt and escape most of the taxes somebody else has to carry, can indulge itself; but measured by the rigorous standards of privately financed enterprise common to American business, it has been most successful and progressive. Even now, after more than sixty years of outstanding growth, its post-war plans are laid for research, development, and expansion outdistancing all previous performances.

Secondly, Mr. Lilienthal accuses me of producing a statistical showing of financial loss to the taxpayers of the country from TVA through the device of charging against power the cost of various other benefits, such as navigation, flood control, fertilizer. Surely there is nothing novel in my approach. The proponents of the TVA repeatedly claimed that the power revenues would pay back the entire cost of the project without one cent of cost to the taxpayer. Congress and the American people were assured that the project was to be self-liquidating.

Its first chairman, after a year’s operation, said that it would return the entire cost in twenty-five years with interest on the capital, after allowing a five-year starting period. That promise gradually has deteriorated in subsequent reports or statements from the TVA. The latest assurance from its present chairman was that the entire cost would be returned in sixty years without interest. What a difference between these two prognostications!

I emphasize this matter of self-liquidation because many other multiple-purpose projects are now being voted on by Congress on the assurance that they will be self-liquidating, that they will not cost the taxpayers one cent. In view of these considerations, I feel that the taxpayers should know how they are coming out financially with the TVA as a whole. Even if we confine ourselves to power alone, the eleven-year TVA power record for which reports are available, taking the TVA’s own cost allocations and statements of capital, shows that the TVA has lost money on power alone, if interest and taxes are taken into account.

If the TVA has the merit as a business enterprise that Mr. Lilienthal claims for it, then let this enterprise pay interest on the capital devoted to its power enterprises, but let this capital charge be determined by a separate agency or board of the government; and let it also pay into the Federal Treasury in lieu of taxes a percentage of its revenue equal to the percentage paid into the Treasury by private industry for taxes. If the TVA is not willing to carry these burdens of private enterprise, then let it cease disparaging those who must carry such burdens for the support of government and for the provision of capital to develop and expand American business.

Thirdly, Mr. Lilienthal makes a point of “excess profits.” Readers of the Atlantic Monthly will appreciate that the so-called “excess profits tax” is nothing more nor less than a war tax. To begin with, electric companies regulated by state utility commissions cannot make excess profits, because their rates are fixed according to their income. The electric utility companies in 1944 had a net income of $509,000,000 contrasted with a net income of $539,000,000 in 1939.

Despite higher gross revenues, and notwithstanding the fact that close to a billion additional dollars had been spent for new generating plants and transmission lines to serve the war effort, they suffered a reduction in net income of $30,000,000, or nearly 6 per cent. Plainly such a tax is simply a war tax, and Mr. Lilienthal’s play on the title of the tax is misleading and trivial.