---
type: source
title: "Rural electrification as infrastructure two-gate activation analogue: REA (1936) explicitly seeded demand, not just supply"
author: "Richmond Federal Reserve / EH.net Encyclopedia"
url: https://www.richmondfed.org/publications/research/econ_focus/2020/q1/economic_history
date: 2020-01-01
domain: space-development
secondary_domains: []
format: thread
status: processed
priority: medium
tags: [two-gate-model, infrastructure-economics, rural-electrification, REA, demand-threshold, government-bridge, analogue]
---

## Content

Richmond Fed economic history article on rural electrification (2020 Q1), supplemented by EH.net encyclopedia entry on Rural Electrification Administration:

**The two-gate pattern in rural electrification:**

**Gate 1 (supply threshold) cleared:** Power generation and distribution technology available from ~1910s. Cities had electricity by the 1920s.

**Gate 2 (demand threshold) not cleared:** "Despite widespread electricity in cities, by the 1920s electricity was not delivered by power companies to rural areas because of the general belief that the infrastructure costs would not be recouped, as there were far fewer houses per mile of installed electric lines in sparsely-populated farmland."

**Private utilities' explicit assessment:** "Private utilities maintained that without assistance to help finance the wiring of rural homes and the purchase of electric appliances, farmers would not have enough demand for electricity to make the service sustainable."

**Government bridge mechanism (REA 1936):**
- REA authorized to make loans for BOTH infrastructure wiring AND appliance purchase
- This is the critical structural insight: the REA explicitly seeded demand (appliance purchase loans) not just supply
- The extension of credit to wire homes and outfit them with appliances "ensured a demand for electricity from the start, which allowed the co-ops to take advantage of economies of scale and keep usage costs low"

**Demand threshold crossing:**
- Rural families first bought small appliances (irons, radios), then refrigerators, then running water
- Per-household load increased with appliance adoption, making per-connection economics viable
- REA lines: 400 miles in 1936 → 115,230 miles by 1939 → 268,000 consumers served

**Cream-skimming pattern (parallels commercial stations):**
- After REA demonstrated rural viability: "For the first time, the privately owned power companies showed an interest in the rural market, with some beginning 'skimming the cream' by building distribution lines into the most lucrative areas"
- REA's role shifted from primary provider to competitive backstop
- Private capital concentrated in strongest commercial opportunities after government demonstrated the market

**Broadband parallel (from same search):**
"Without networks there was no demand for powerful applications, but without such applications there was no demand for broadband networks." — classic two-sided market chicken-and-egg structure matching commercial stations precisely.

## Agent Notes
**Why this matters:** This is the theoretical grounding the two-gate model needed. Rural electrification is a well-documented infrastructure economics case with clear gate 1/gate 2 structure and an explicit government bridge that targeted demand formation, not supply capability. The 30-year gap between supply threshold clearing and demand threshold crossing (1910s → 1936+) parallels the commercial station gap (Falcon 9 economics viable ~2018; demand threshold still not cleared in 2026).

**What surprised me:** The REA explicitly provided appliance purchase loans — not just infrastructure loans. This is a direct operational parallel to NASA CLD: both programs recognized that you had to CREATE demand (appliances / commercial station users) not just BUILD supply (power lines / launch vehicles). The government bridge is a demand seeding mechanism, not a supply subsidy.

**What I expected but didn't find:** A formal economic framework that names this pattern. The evidence confirms the two-gate pattern empirically but doesn't give me a named theory from economics literature. This is still a gap — the rural electrification literature uses "natural monopoly," "network effects," and "infrastructure economics" but doesn't seem to have a canonical named model for "supply gate + demand gate + government bridge" activation.

**KB connections:**
- [[space governance gaps are widening not narrowing because technology advances exponentially while institutional design advances linearly]] — the parallel: institutional design for rural electrification (REA 1936) came 20+ years after the technology was available, just as space governance is lagging technology
- [[the space launch cost trajectory is a phase transition not a gradual decline analogous to sail-to-steam in maritime transport]] — the rural electrification transition is another historical phase transition analogue: supply threshold crossed quietly (1910s), demand threshold crossed suddenly with REA catalyst (1936), then rapid adoption

**Extraction hints:**
1. "The two-gate infrastructure activation pattern — supply threshold crossed decades before demand threshold, government bridge explicitly seeding demand formation rather than supply capability — is confirmed by rural electrification (REA 1936 provided appliance purchase loans as demand creation, not just infrastructure loans as supply subsidies), establishing the pattern as a generalizable infrastructure economics phenomenon not unique to space" (confidence: likely — documented historical evidence; strong structural parallel)
2. "The REA's provision of appliance purchase loans alongside infrastructure loans reveals that government bridge mechanisms in infrastructure activation are designed to cross Gate 2 (demand formation) not Gate 1 (supply capability) — a structural insight that applies directly to NASA CLD anchor contracts and Space Act Agreements as demand seeding mechanisms" (confidence: likely — REA mechanism is documented; NASA CLD parallel is structural)

**Context:** This source was identified through web research on infrastructure economics analogues for the two-gate model. The broadband chicken-and-egg literature (Pew Research Center, 2002; Telecom Act 1996 context) provides a second analogue from a more recent, digital-infrastructure context. Together, rural electricity and broadband provide strong cross-domain validation for the two-gate model.

## Curator Notes
PRIMARY CONNECTION: [[launch cost reduction is the keystone variable that unlocks every downstream space industry at specific price thresholds]] — this source provides theoretical grounding that the two-gate model extends Belief #1 rather than replacing it
WHY ARCHIVED: Empirical evidence from non-space domain confirming two-gate model generalizability. Critical for moving the two-gate model from "experimental" to "likely" confidence. The REA mechanism directly parallels NASA CLD's demand-seeding role.
EXTRACTION HINT: Extract the generalizability claim (rural electricity + broadband as analogues) as a separate claim from the space-sector-specific two-gate claim. The generalizability is what moves confidence level. Do not extract without citing both historical cases.
