The New Suburban History

The New Suburban History E D I T E D BY K E V IN M . KRUS E A N D T H O M A S J. S U C R UE The University of Chicago Tress Chicago ami London KEVIN M. KRUSE is assisiam professorof hlstoryat PnncMon University. He is the author til K’liitefNvlif; Arlunw mi J l/rc Muling of MiKfem Cpnserviilijm I2005I.THOM AI J. JU CRUE is the and Louise W. Kahn Professor of History at the University of Pennsylvania. He is the author of TheOcigins af Ok Urban Crmi 1996) and coeditorof IV. E. B. DirBois, Race, and tht City (1998, with Michael B. Katr). The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London ©21)06 by The University of Chicago All rights reserved. Published 21106 Printed in he t United States of America IS 14 13 12 11 10 09 OK 07 06 1 2 3 4 5 Chapter 6, by Matthew D. Ussitei, draws mainly from chapter 7 of Tire Silent Mo/hrrfy. SirdirrfitmPolitics In tlx Swibelr South (Princeton: Princeton University Press, forthcoming) and is used by ermp ission of the publisher ISBN: 0-226-45662-5 (cloth) ISBN: 0-226-45663-3 (paper) Library of Congress Cataloglng-in-Publication Data The new suburban history / edited by Kevin M. Kruse and Thomas J.Sugtue. p. cm.—(Historical studies of urban America) Based on a conference held at Princeton University In f eb. 2004. Includes bibliographical references and index. ISBN 0-226-4S662-S (cloth : alk. paper)— ISBN 0-226-45663-3 (pbfc.: alk. paper) 1. Suburbs—United Slates—I listory—Congresses. 2. Metropolitan areav-United States—History—Congresses. I. Kruse, Kevin Michael, 1972- II.Sugrue,Thorn,isf.,1962- III.Scries. HT352.U6N48 2006 307.76’0973—slc22 2005029658 © The paper usixl in this publication meets the minimum requirements of the American National Standard for Information SciencesPermanence r>l Paper for Printed library Materials, ANSI Z39.48-1992, O N E Marketing the Free Market State Intervention and the Politics of Prosperity in Metropolitan America DAV ID M . 9. FB E U N O The modern American suburb is heavily indebted to the federal government. Fordecades writers have chronicled this debt, documenting how state policy fueled the rapid suburban growth that has so decisively shaped U.S. politics and culture since World War II. Federal spending priorities, mortgage programs, tax incentives, urban renewal, and a host of other public initiatives fundamentally reshaped the metropolis. Most commentators agree, moreover, that those same interventions helped to secure the suburbs’ mostvaluable resources—better housing and jobs, cheap consumer credit, safe and healthy neighborhoods, good public services and schools—almost exclusively for white people, and thus accentuated the nation’s racial and class inequalities. The state’s early postwar mortgage initiatives, for example, denied most racial minorities access not only to suburbia but also to the many benefits of homeownership. Meanwhile federal public housing, urban renewal, and highway programs undermined existing—often vibrant—minority communities in cities nationwide. By the 1950s and 1960s, the results were visible to most Americans. The fast-growing suburban fringe was becoming the center of postwar affluence, it was monopolizing the best public services and fastestgrowingemployment sectors, and it waspopulatedprimarily by whites who owned their homes. Meanwhile the nation’s 11 D A V I D M. P. f R E U ND cities, and especially theminority populations concentrated within them, were left behind.1 The suburbs owe another important debt to the federal state, one that has received relatively little attention. In addition to creating wealth for some while helping tomarginalizeothers, federal intervention also helped create and popularize a unique postwar political narrative that obscured the origins of race and class inequality in the modern metropolis. Paradoxically, the state helped popularize the myth that its policies did not facilitate suburban growth and did not contribute to new metropolitan patterns of inequality. Instead it insisted that “free market” forces, alone, were responsible for the gulf—economic and, increasingly, spatial—that separated the nation’s haves from its have-nots. Not surprisingly this free-market story was embraced by the beneficiaries of federal largesse, most enthusiastically by an expanding, and increasingly suburban, white middle class. And their investment in this story holds special importance for our understanding of politics and culture after World War II, because suburban whites invoked the narrative and constantly elaborated upon it to justify racial exclusion. Indeed whites’ rationale for residential segregation changed quite dramatically during the years that saw more and more people of European descent attain the “suburban dream.” Older, pseudo-scientific explanations for racial exclusion and inequality did not disappear. But beginning in the 1940s, with racial science discredited andanewantiracist, civil rights politics forcing whites, especially in the North, to at least acknowledge the principle of racial equality, those older racial narratives were quickly overshadowed by a powerful new defense of the residential color line. In metropolitan areas nationwide, whites increasingly argued that they opposed integration not because of race per se, but because it would disrupt the robust free market for housing that had produced so many thriving suburban communities. Whites began to defend racial exclusion by arguing that they were simply defending the rights and privileges that homeownership had afforded them. Suburban homeownership, in particular, became a powerful symbol of these rights. This subtle but decisive shift in whites’defense of segregation—from a discourse focusing on race and compatibility to one focusing on markets and rights—enabled white people to insist, quite earnestly, that the politics of suburban exclusion was not motivated by racism. As people of European descent mobilized nationwide to maintain the racial homogeneity of their neighborhoods, schools, and even public spaces, a new language of markets and rights helped unite whites that otherwise had few class, ethnic, or geographical ties to bind them. 12 M A R K ETI NG THE FREE MARKET Of course, this rights discourse—and whites’ investment in a vision of purely market-driven metropolitan growth—was not simply the product of government storytelling. Excellent recent studies have helped us understand why so many northern whites came to view maintenance of the residential color line not necessarily as a racial matter but instead as a principled defense of white peoples’ “rights”—as homeowners, working people, consumers, or citizens. 2 Quite often, though, scholars portray this rights talk, or even a new “investment” in whiteness itself, as an automatic, almost reflexive defense of postwar privileges in the face of black people’s demands for access and political equality. In short this scholarship often portrays the defense of white privilege as a default strategy, rather than fully exploring how the definition of white privilege, itself, was transformed during these years. Moreover there has been very little investigation of the ways that institutional change—specific political and policy interventions—actively shaped whites’understandingof both privilegeand inequality in the postwar United States. Institutional change was formative because state interventions taught very specific lessons about the nature of economic growth and patterns of metropolitan change. Most important, the postwar “free market” narrative—and its rationale for maintaining the color line—was popularized by many of the same federal interventions that were fueling economic growth and perpetuating inequality: namely, the banking, monetary, and credit programs that encouraged millions of Americans to finance new levels of consumption by going into debt. This chapter focuses on one set of federal interventions: the New Dealera selective credit programs that created the modern mortgage market. It argues that selective credit programs did not merely revolutionize the nation’s housing and settlement patterns—a narrative familiar to urban historians—but that they also directly shaped whites’ interpretation of postwar affluence, segregation, and inequality. It is well known that in the 1930s new federal credit programs—most famously those operated by the Federal Housing Administration (FHA)—standardized the long-term, lowinterest home mortgage and facilitated its use nationwide, thus making homeownership affordable for most white people after World War II. Scholars have shown that by the 1940s, the state had created and begun to sustain an expansive, racially restrict edmarket forthesuburbansinglefamily home. But the state did much more, because it simultaneously assured the public that its interventions in no way disrupted American capitalism. Mortgage programs, officials insisted, merely “unleashed” existing, but latent, market forces. In short, public officials and policymakers claimed that it was simply the free market for property that produced 1 ) D A V I D M. P- F R t U N D suburban affluence, metropolitan segregation, and urban poverty. Suburban whites eagerly embraced this story and made it central to their defense of postwar prosperity and privilege. To understand fully the politics of white flight and white backlash in postwar America, as well as the depth of resistance to redistributive public policies, it is important to examine why so many whites believed that postwarprosperityandracialsegregation were simply the productsofafree market for housing, one unfettered by government influence. Countless whites came to believe that the state had no right to intervene in the economy or in their local communities because the state helped convince them that it had not intervened in the past. Revisiting the FHA’s operations and its political legacy suggeststhatcountless Americans have vehemently rejected federal interventionsdesigned to rectify patternsofclassand racial inequality by tapping into a powerful myth about the “free market” for residence, a myth codified and promoted by the state itself. The FHA, Postwar Suburban Growth, and the Legacy of New Deal Reform Suburban histories generally pay little attention to banking, monetary, and credit policy because of a common assumption about New Deal reform and its postwar legacy: namely, that the state’s most influential interventions were its socially progressive policies, the high-profile and often controversial efforts to create jobs, protect workers’ rights, regulate prices, build public infrastructure, and provide social insurance or relief. We know a great deal about programs designed to arrest monopoly control or to distribute market resources more fairly. And scholars have shown that many of these programs were either compromised from the outset—not all deserving citizens could benefit—or undermined in the 1940s and 19S0s. Scholars’ approach to postwar state policy has often been shaped by a preoccupation with the “failure” of liberal reform, with the abandonment of radical experimentation in favor of policies encouraging unbridled economic growth. This focus, in turn, has led to an emphasis on a seismic shift in federal priorities in the late 1930s, when the Roosevelt administration abandoned efforts to build what Ira Katznelson has called the developmental state”—one focused on promoting equity and social justice—in favor of a “fiscalist state,” characterized by Keynesian, pumppriming interventions designed to promote unregulated growth. Many observers have joined Alan Brinkley in describing this shift in priorities as “the end of reform.”3 14 M A R K E T ING T H E FREE MAR KET The focus on opportunities lost has generally precluded careful consideration of the New Deal’s less progressive reforms, many of which had equally decisive impactson postwar politics and culture. Perhaps the most notable omission—especially among urban and suburban historianshas been the early monetary, banking, and credit policies that helped make the fantastic economic expansion of the postwar years possible. Historians generally date the emergence of the Keynesian state to the “Roosevelt recession” of 1937-38, when New Dealers, desperate to revive domestic markets, embraced both deficit spending and a compensatory fiscal policy. 4 Yet e conomists have long told a more complicated story, arguing that earlier federal initiatives, beginning in the Hoover administration and culminating with the Banking Act of 1935, created essential preconditions for postwar growth by revolutionizing the state’s ability to manage the money supply and subsidize credit markets. Most important, it was during these years that the state began to regulate and provide capital for private banks and the savings and loan industry, transformed the Federal Reserve from a central bank into a federal regulatory body, and assumed control of discount rates and interest rates. By 1935, it had abolished thegold standard, was insuring a host of private lenders against loss, had expanded its ability to buy and sell Treasury securities as a means to supplement private bank reserves, and had greatly expanded its powers to provide emergency loans to institutional lenders. The result was that by the mid-1930s, the federal government had set up the mechanisms to promote a new kind of national economic growth by creating and sustaining a very safe and flexible market for consumer credit. Put simply, the state made it easier—in many cases risk-free—for the private sector to lend and borrow, while simultaneously making the national currency more “elastic” so that it could meet producers’ and consumers’ changing needs. State actors were now poised to promote actively the expansion of credit markets and, by so doing, expand the nation’s money supply, effectively creating new wealth. 5 The new system gave the state considerable control over both money creation and credit cycles, so i t could strategically target chosen industries and consumer markets for subsidy. And, perhaps most important, the state’s credit hadnowbecometheiinchpinforbothstabilizingtheeconomy and fueling a debt-driven economic growth (a process that some economists call the “socialization” of the nation’s debt). Taken together, economists argue, these early interventions fundamentally transformed the operations of American banking and credit markets, a transformation necessary to make possible both the fiscatist state and the stunning rates of postwar growth. 4 is D A VID M . P. P8 £ U N D Most historians, by contrast, treat monetary, banking, and credit policies not as interventions that transformed the workings of American capitalism, but rather as stopgap measures or concessions to vested interests, designed to “stabilize” existing markets and protect existing market structures. New Deal historians often describe the larger Keynesian revolution as simply reactive—a response “to the transformation of the United States from a producer-oriented to a consumer-oriented society.” This analysis, however, threatens to minimize the state’s role in facilitating that transformation. Thedisagreement hereis not simply about the timing of the state’s most decisive interventions, but rather about the impact of Depressionera legislation on the postwar economy. Many economists argue that state policy facilitated a monetary and credit revolution that created radically new kinds of market relationships, which both enabled and actively promoted a new kind of economic growth. Most general histories, by contrast, insist that these early reforms were designed not to alter the mechanics of the market, but rather to “prop… up the Institutional foundations of capitalism.”7 The selective credit initiatives that have received the most attention are theFHA’s mortgage insurance programs established by the National Housing Act (NHA) in 1934 and the Veterans Administration’s (VA) mortgage guarantee programs, established in 1944. By insuring 8 private lenders against loss, by standardizing appraisal practices, and by popularizing the use of long-term, amortized mortgages, the FHA and VA revived and dramatically expanded the markets for home-improvement and for privately owned homes, eventually making these markets the “bedrock” of the new consumer economy, as Lizabeth Cohen writes, and “central… [to] postwar prosperity.” It is also well documented that FHA and VA operations systematically discriminated by race. Both agencies endorsed the use of race-restrictive covenants until 1950. And both followed the appraisal guidelines outlined in the FHA’s Underwriting Manual, which prohibited realtors (and, by extension, lenders and builders) from introducing “incompatible” racial groups into white residential enclaves. “If a neighborhood is to retain stability,” explained the first published edition, “it is necessary that properties shall continue to be occupied by the same social and racial classes,” for a “change in social or racial occupancy generally leads to instability and a reduction in values.”9 The FHA removed these explicit racial rules from its manual in the late 1940s, but both agencies actively supported these principles well into the 1960sand thus excluded mostracialminorities from therobust new market for homeownership. That market was enormous. Together, the programs helped secure debt financing for millions of dollars of home-repair work 1 * M A R K E T ING THE FREE MARKET and for nearly one-half of all new single-family home purchases between 1947 and 1958. By 1964, they had facilitated the purchase of more than 12 million mostly suburban housing units, almost exclusively for whites. Meanwhile most nonwhites were left to rent a home or apartment, usually in the oldest and traditionally segregated central-city neighborhoods, or to pay for their homes without the benefit of federal largesse. 10 But calculations of the FHA’s and VA’s activity do not, by themselves, fully capturethegovemment’s impact on suburban growth and suburban politics, for two reasons. First, federal policy simultaneously restructured the “conventional,” or noninsured, market for housing credit. Conventional mortgages financed most suburban home purchases after World War II and did so by obeying the segregationist principles outlined by the FHA. Second, federal selective credit programs decisively shaped countless Americans’ interpretation of the new, racially segregated metropolis, because they helped convince white businesspeople and white consumers that the state was not meddling in the private market for residence. The government’s dramatic influence on the conventional mortgage market receives, at best, only cursory treatment in most suburban histories. State intervention began with Hoover’s creation of the Federal Home Loan Bank system in 1932and continued for decades. Powerfulnew federal programs—most important, the Federal Savings and Loan Insurance Corporation (1934) and the Federal National Mortgage Association (1938)— worked in concert with the FHA and VA to bring the terms of conventional lending in line with government-insured mortgages and, after World War II, to sustain the market’s meteoric expansion. By standardizing appraisal practices in the noninsured market, insuring savings and loan accounts, and purchasingand reselling existing mortgages, federal programs attracted more institutional lenders into the home loan business and accelerated lending activity. The result was a steady increase in the flow of housing credit, both in the insured and conventional markets. By the late 1940s, the state’s conventional market programs had dovetailed with FHA and VA activity to create a very flexible, lucrative, and fast-growing market for housing credit, one deemed safe by institutional lenders precisely because its operations were standardized, regulated, and in many cases directly insured by U.S. Treasury funds. Meanwhile federal oversight also meant I hat racial discrimination became a national standard because the interdependence of the insured and conventional markets required participatinglenders to obey the appraisal guidelines codified by the FHA, including the principle that racial integration undermined property values in white neighborhoods. So, in the final analysis, federal intervention created and sustained powerful new markets for both insured and 17 D A V I D M. P. F R £ U NO conventional mortgage lending, while making racial segregation a constitutive element of both.” In part because of their tendency to downplay the transformation of conventional mortgage lending, historians have usually described the FHA and VA as market-friendly interventions that “unleashed” pent-up demand rather than components of a larger reform strategy designed to create new wealth by subsidizing a market for debt. Indeed even the scholarship that acknowledges the FHA’s and VA’s role in subsidizing homeownership regularly portrays the larger mortgage revolution, and the suburban housing market that it created, as the product of free market forces, insisting that New Deal reformers relied on “unregulated private markets” to revive construction and meet consumer demand. And they conclude, accordingly, that the resulting racial segregation of neighborhoods and capital was an unfortunate—but unavoidable—result of policies that simply legitimized and institutionalized existing sentiments and market practices. Since the federal government did not create the new market for private housing, many argue, it cannot be held responsible for the discriminatory outcomes that this market produced.12 Again, housing economists have long understood the state’s role very differently. They have argued that selective credit operations created new market structures and market relationships, which made possible new kinds of economic activity and wealth creation. They describe the modern housing market, inother words, as highly regulated and unimaginable without sustained federal involvement. Among these writers was Miles Colean, co-author of the bill that created the FHA and later the agency’s chief economist. As early as 1950, Colean described the postwar housing market as “more completely under [government] surveillance andcontrol” than it was during Worid War 11. Colean’s contemporaries then described how New Deal and postwar credit programs “create[d) and [kept] in operatlona greater number of banks and S&Ls than a purely competitive process would have permitted,” how the state “increased the flow of funds into residentialconstruction”bybillionsof dollars, andevenhownewfinancial industries were born “to meet a need that was created when FHA and VA operations [helped create] a national market for mortgages. “James Gillies explained quite simply in 1963 that “market forces do not set the return” for investment in the modern mortgage market. Two years later Raymond Goldsmith summarized the consensus among economists, writing that the effects of government participation in the residential mortgage market were so strong, pervasive, and intricate, that it is impossible to visualize the form this market would have had in the absence of government intervention.” Starting with the assumption that government programs is MARKETIKJ C T ttE fREE MARK ET gave birth to a new kind of postwar housing market, many of these writers simply debated whetheror not selective credit policies—as opposed to, say, direct payments—offered what one author called the most “appropriate method of subsidization.” 13 A gl impse at the operations of the FHA further demonstrates how state po licy created new market activity and wealth for specific businesses and consumers. Most notably, federal officials designed, promoted, staffed, and eventually managed credit agencies by working closely with the private sector, especially representatives from the building, home finance, and real estate industries. From the outset, the FHA enlisted private organizations to collect data for every metropolitan region on tenancy patterns, property values, building permits, the volume of housing sales, employment trends, payrolls, and thefinanclal conditions of local lenders. Meanwhile in Washington, FHAadministratorsconsulted withdevelopers and bankers to assess the program’s impact, propose legislative reforms, and lobby congressmen for their passage. And the FHA’s technical staff organized educational conferences nationwide to introduce the insurance system to businesspeople and municipal officials and to coordinate local lending efforts. Postwar planning began as early as August 1945, when FHA Administrator Raymond Foley appointed a committee to examine how the agency could “be of help to private enterprise in all broad phases of the post-war housing market” and specifically to determine “what further authorities may be necessary and desirable to put us fully in (that] market.” Administrators continually met with bankers, mortgage lenders, builders, insurance executives, and realtors to discuss legislative adjustments to current FHA policy. Indeed, collaboration remained so integral to postwar operations that staff members repeatedly turned down offers of honorary membership in private building and financial institutions, insisting, as one official noted, that while it would not be “illegal,” it could nonetheless be “embarrassing” and seen as a conflict of interest. Regardless, the FHA continued to work with business groups at the local and national levels to measure the programs’ impact on business volume and to co-sponsor educational events. In fall 1948, for example, the FHA joined forces with the National Association of Home Builders to sponsor 110 meetings in 60 cities, at which 13,500 attendees were updated on the new liberalized terms of insured mortgages and the reauthorization of the government’s secondary market operations. 14 The need for such an intense public-private collaboration in the promotion and operation of the new mortgage market has two important implications for the history of suburbanization and postwar inequality. 19 D A VID M . P. F M U N D First, it further demonstrates that the state did not merely revive and expand existing housing markets—or awaken “hibernating” capital, asmany contemporaries liked to say—but rather was instrumental in creating new supply, new demand, and new wealth. Even the FHA’s first administrator, James Moffett, admitted as much, at least in the early 1930s, telling business audiences that the agency was “creating a year-round market” for home improvement and “educating the banks to carry on indefinitely a tremendous amount of lending,” activity that would “develop far more business than in the past.” “There are billions of dollars to be taken out of” the mortgage insurance programs, he predicted, acknowledging that “no such market has ever before in all history been offered industry.”15 Second, if the depth of public-private collaboration underscores the government’s role in structuring postwar growth, it also helps explain the state’s ability to popularizean alternative—and dominant—narrative: the claim that it was not federal policies, but rather the free market for homes, that was fueling both prosperity and new patterns of inequality. In addition to structuringandsubsidizingthe postwar housingeconomy, the state also helped shape whites’ vision of that economy. And by doing so it helped fashion a language that enabled whites to support racial exdu -an while insisting that they were not “racist.” Federal Housing Folicy and the Marketing of a Myth Given the postwar repudiation of pseudo-scientific racism and increasing support for the principle of racial equality, the public renunciation of racism by white suburbanites is hardly surprising. Whites in the North and West had long supported residential segregation, in cities and suburbs alike. But to do so in the wake of a war against fascism and In the midst of a national debate over civil rights required a new, race-neutral rationale. Whites fashioned a new rationale for housing segregation by tapping into the countless Cold War-era celebrations of consumption, the single family home, and the power of the free market to resolve economic conflicts. Above all else, homeownership became for countless whites a cornerstone of what Lizabeth Cohen calls the new “faith in a mass consumption postwar economy,” which celebrated an “integrated ideal of economic abundance and democratic political freedom.” In this context whites saw the protection of their homes—from any kind of supposed threat—as the right of any citizen who had held up his or her end of the economic compact. w Still, in most histories of the postwar suburbs, the impact of housing policies on white racial politics is rather narrowly construed. Scholars 20 M A R K E T I N G THE FREE MARK ET describe government policy as doing little more than fueling growth and segregating housing resources, thereby creating the geographic, architectural, and economic settings in which countless local battles over neighborhoods, housing, jobs, and schools took place. In short they portray the state as helping to create the segregated metropolis, but then treat the fact of segregation simply as a stage for these (presumably) more politically formative struggles. Indeed, these histories typically depict the new language of rights as a “homegrown” phenomenon. They assume that whites simply ignored the state’s role in perpetuating racial discrimination and then used local conditions and local events to construct rationales absolving them of responsibility for segregation and inequality. But structural transformations and local organizing do not, by themselves, explain whites’ fundamental misunderstandingof postwar prosperity and inequality. A closer examination of selective credit programs reveals that the state was also instrumental in creating and popularizing a powerful narrative about metropolitan change, the story that it was impersonal and value-neutral markets—not white people—that made racial segregation necessary. Widely embraced by a new generation of suburban residents, this myth would have profound implications for racial politics in thepostwar decades, because it enabled whites to support racial segregation openly while insisting, quite earnestly, that exclusion was not fueled by prejudice. Government intervention promoted this story in two closely related ways. First, by entering the mortgage market in the 1930s, the state validated and disseminated a relatively new economic theory about the relationship between race and property: the claim that the laws of freemarkets required the racial segregation of residence. That theory quickly became conventional wisdom among white businesspeople and consumers, encouraging them to portray racial exclusion not as a byproduct of their racial preferences, but rather as an inexorable market imperative, one confirmed by the hard science of land-use economics. Second, and paradoxically, the state actively promoted the story that it was not interfering with the free market for homes. The creation and operation of the new selective credit programs helped shift whites’ thinking about the relationship between race and property. Put briefly, New Deal interventions created a new market for credit (and thus a new market for private residence) that explicitly disqualified minorities from participation, yet justified exclusion without invoking the principle of racial “difference”—a dramatic departure, indeed, from the common rationale for segregation invoked in he t years before the Depression. Officials claimed quite explicitly that federal appraisal guidelines 21 D A VID M . P. PR E U N D were not racially motivated, but rather tailored to respect the principles of real estate economics, which simply required racial separation. Put another way, federal intervention gave birth to a suburban housing market grounded in ht e principle that racial exclusion was solely an economic imperative, ratherthanaproductof personal prcferenceorabelief in racial difference. Accordingly the maintenance of segregation quickly became a prerequisite for assuring robust metropolitan growth. Federal officials did not invent this “market imperative” theory; it had its origins among a loose-knit coalition of realtors, planners, and housing economists, who led the movement to promote race-restrictive covenants and municipal zoning during the 1910s and 1920s. But their rationale for exclusion remained a minority view at the time and largely unnecessary given state sanction for racial discrimination and whites’ deep investment in racial pseudo-science. Duringthel930sand 1940s, themarket imperative theory of segregation rapidly becamethedominant and, in many settings, thesole rationale for segregating residential neighborhoods by race. This transformation occurred as the theory was codified by federal intervention and written into the operations that oversaw the new market for residence. The means of dissemination were quite conventional. The theory was outlined in the Underwriting Manual and in the other professional publications that quickly set the standards for construction, appraisal, and real estate practices nationwide. Beginning in 1934, the rules that structured the suburban housing market explicitly described nonwhites as a calculable, actuarial risk to white-owned property. This meant that the market’s day-to-day operations were now governed by the principle that racial exclusion was both necessary and not ideologically driven. This principle quickly became foundational to businesspeopies’ and consumers’ defense of racial exclusion, not coincidentally during the years that more and more whites were declaring their commitment to racial equality. By the 1940s, the state had helped create a new economic environment that defined nonwhites as a threat to property and markets for property—not, that is, as a personal threat. This encouraged a generation of whites to view racial exclusion not as an act of individual or group racism, but rather as a matter of sound land-use planning.17 Meanwhile the state shaped whites’ ideas about metropolitan growth even more directly and self-consciously. Most important, it aggressively promoted thestory that freemarketsand consumer demand alone enabled the nation to rebound from the Depression and later fueled suburban growth. During the years that its mortgage programs popularized the theory that it was not racial difference or prejudice, but rather the impersonal forces of the market, that required racial segregation, the state 22 M A R K ETI NG TME fRE E M A RKET simultaneously assured consumers that its intervention was in no way distorting the natural market for residence. Significantly it was not the race issue per se that produced this characterization of selective credit operations. Indeed most housing officials were unapologetic about the program’s racial rules, seeing no conflict between promoting homeownership and excluding minorities from this new market.18 Instead what most preoccupied New Dealers was the need to convince business groups and fiscally conservative congressmen—and, perhaps, even themselves—that the government’s unprecedented interventions in the U.S. economy were not cutting a path toward “state control” ofprivate enterprise. Policymakers feared, justifiably, that doubts about the economic soundness of the mortgage insurance experiment would keep people from lending, borrowing, and spending and thus underminetheprogram’s potential to resuscitate the moribund economy. So to calm a Depression-weary public and to ensure the requisite economic a ctivity, the FHA aggressively marketed its programs, with a multifaceted promotional campaign designed to draw institutions and consumers into this new and largely untested market for credit. The agency sponsored speaking tours, produced radio and film advertisements, distributed promotional literature, hosted regional “home” fairs, and sent canvassers to millions of individual residences. The goal was toinciease lending, borrowing, andspendingon home construction, purchase, and repairs, by convincing Americans that the new, government-insured market for credit was safe. Yet the rhetorical refrain holding the campaign together wasa celebration of the “free market for homes” and that market’s untapped curative powers. Uniting the speeches, pamphlets, and other appeals inthisambitiouspublicrelationsgambitwasaconsistentreminder that federal mortgage programs were wholly compatible with free enterprise, and that American consumers and businessmen held the keys both to national recovery and sustained economic growth. The most visible PR efforts targeted consumers and businesspeople in local communities. They began on August 9,1934, when the FHA kicked off its “Better-Housing Campaign,” a multimilllon dollar effort to stimulate borrowingand spending for both home improvement (under Title I f o theNHAJand new home construction (under Title II). FHA Administrator JamesMoffett described the initiative as a “massive education campaign,” even defining the “business of the Housing Administration” as “a vast, nation-wide selling job, an educational campaign to sell the public on Better Housing.” The key to ensuring this new market’s success, he believed, was informing businesses and consumers about federal insurance and the opportunities that it afforded them. Within a week, the agency 23 D A V I D M. P. PRE UNO supplied 28,000 financial institutions with copies of the rules and regulations for Title I insurance. By late October it had spent 51.3 million on the campaign and had mailed out over 52 million pieces of literature. Meanwhile its new “public relations division” initiated local Better Housing campaigns in thousands of communities, appointing regional, state, and district directors who supplied educational materials to businesspeople, chambers of commerce, and civic groups. By early December, the FHA had appointed 4,513 community chairmen, who in turn had initiated 3,245 community campaigns. And by then, house-to-house canvasses were underway in over 1,100 municipalities, where volunteers tried to “persuade property owners,”Moffett explained, toget started on “the modernization and repair work they need.” The campaign was enthusiastically embraced by municipal officials, local businesspeople, and average citizens, whooften contributed novel promotional ideas of their own. For example, fifteen “church women” involved in the house-to-housc canvass in Fairfax, Oklahoma, “decided to modernize their own homes as an example to the rest of the town.” 19 According to agency estimates, in just four months the campaign had already generated between $145 million and 5210 million in business nationwide. Its rapid impact was attributable, in part, to the unique institutional environment created by the federal government’s new stake in credit markets. Because the FHA’s day-to-day operations involved constant public-private collaboration, on both the national and local levels, the agency had a ready-made platform for its promotional initiatives. The collaboration that made FHA operations possible (and cost-effective) also facilitated its efforts topromote lending, borrowing, and spending. Andby year’s end, those efforts had organized 4,000 communities and initiated 3 million household visits. By March 1935, campaigns were underway in 6,000 communities—which together contained about 65 percent of the country’s population. House-to-house canvasses in over2,000 locales had reached 5.6 million individuals. The canvassing, alone, secured pledges for over 1 million home improvement jobs.20 Meanwhile the agency enlisted the nation’s newspapers and magazines, supplying them with “education copy” and inviting dailies and press associations to use the FHA’s “spot news and feature service.” By December 1934, over 1,000 newspapers—accounting for 55 percent of the nation’s dailies were running Better Housing sections or supplements, ranging in size from 1 to 33 pages, while more than half of the nation’s 1,600 trade publications, according toMoffett, were “cooperating with (the FHA| in a fine spirit.” Half of the nation’s 2,000 dailies had already requested additional promotional materials—exclusive articles or features tailored 24 M A R K E T ING T H E FREE M ARK ET to their communities—while another 2,500 weeklies, mostly from rural areas, had asked to be included in the campaign. Moffett called the press ‘a godsend to the Housing Administration,” claiming that news coverage and advertising was providing “invaluable help in telling American industry and the public generally what we have to offer them.”21 Other media and venues were equally influential. The agency prepared films, radio promotions, exhibits, and posters for distribution and broadcast. An FHA-produced weekly radio feature, “The Master Builder,” was so popular that the agency drafted a form letter to expedite responses to fan mail. And in a particularly aggressive campaign, also initiated in August 1934, senior FHA officials spoke directly to the public over NBC and CBS affiliate stations, introducing listeners to the mechanics of the federal mortgage insurance system and assuring them that it was now safe to borrow. These programs were essentially primers In the new housing economics, literally leaching listeners how the new long-term mortgage worked and advising them how to take advantage of federal insurance. Yet the speeches were always bracketed by assurances that the market’s revival was being driven solely by the forces of supply and demand. Audiences learned that FHA operations did not change or disrupt existing markets, but rather “invite[d| capital once more into the home-mortgage field,” “restore|d| normal real estate values,” and “permit[tedj new construction to proceed again.” The new programs were “straight business proposition[s],” FHA spokesmen insisted, which meant that economic recovery would be achieved not through government spending but rather by “loosenfing] up frozen credits in the form of existing mortgages.”22 The message remained constant throughout the 1930s, altered only by increasingly aggressive appeals tospend (“every owner of homeor business property [w ould] be wise to modernize and repair while present prices prevail,” Moffett told one audience) and by increasingly detailed instructions for soliciting the agency’s help. By 1938, Administrator Abner Ferguson was telling listeners over WCFL, a Chicago radio station, that the FHA was “prepared to see you all the way through your construction from the time thatyou first consider building a home until the last nail is driven and the final papers are signed.” He also encouraged his audience to visit local agency offices, where they could obtain “a list of hose t private institutions which are lending FHA insured mortgage funds in your locality.” And he assured qualified borrowers that the agency would not only “insure your mortgage” but also “guide you until you own your home outright.” Such direct offers of agency stewardship, however, did not stop officials from insisting upon the program’s compatibility with the free market for property. “Remember,” Ferguson concluded, “the Federal Housing Administration 25 D A V I D M. P. F R E U ND has no money to lend. It is not competing with private capital, rather it is bringing private capital back into the mortgage field. 23 Parallel to this public campaign was an extensive effort by FHA administrators to reach out to countless trade and municipal associations. ByDecember 1934, Moffett had introduced the mortgage insurance system to meetingsofthe Chicago Associationof Commerce, Pittsburgh’s Duquesne Club, the New York Chapter of the American Institute of Banking, and to a builders’ convention in Knoxville, Tennessee. The following spring, he spoke before the Advertising ClubofNew York, the Oklahoma Chamber of Commerce, and a meeting of the National Retail Lumber Dealers’ Association in Washington, D.C. His successors toured the country throughout the 1930s, 1940s, and 1950s, addressing hundreds of audiences: real estate groups; chambers of commerce; local, state, and regional associations of bankers, mortgage bankers, and builders; and the national conferences of groups including the American Title Association, the National Association of Mutual Savings Banks, the Home Builders Institute, the American Bar Association, and the Institute of Cooking and Heating Appliance Manufacturers.24 The goal was to educate businesspeople about the new mortgage market, update them on amendments to the insurance programs and promote lending, advertising, building, and spending. FHA officials exhorted their audiences to encourage consumption, either by spreading the word about the new mortgage programs informally, or through direct participation in the agency’s promotional campaign. In 1935, Moffett told a national conference of lumber dealers to “advertise more… (and to try] new methods of promotion,” reminding them of their responsibility to “make every property owner in your community conscious of the program through which a responsible citizen can either improve an existing building or build a new home.” Months earlier he told advertisers in New York City to “persuadjej industry that it does a fine job for itself and for all business through liberal use of its advertising space to point out how and why its products can be used in modernizing and repairing buildings.” These appeals were bracketed, without fail, by declarations of the programs’ compatibility with private enterprise. Speaking before a Memphis meeting of the American Title Association in 1935, for example, Ferguson even outlined whathecalledthe”fundamental premise” ofFHAinsurance operations: 1. Thai private capital operations in the housing field are both necessary and desirable. 2. That private capital in that field can and must be made effective upon a far wider scale than has ever been possible heretofore. 16 M A R K ETI NG T H E FREE M ARK ET 3. T hat the collapse of our real estate and mortgage market under the impact of the depression was not caused by any defect in the theory of private capital operation, as such, but by the unsound, unrealistic and disastrously short-sighted system of appraisal and finance [under] which those operations were conducted. Ferguson added that he was “somewhat puzzled by talk, emanating from certain quarters,” that the FHA represented “an unwarranted and competitive intrusion by the Federal Governmentinto legitimate private business sphere.” The program vvas in no way “an attempt by the government to infringe upon private businessmen,” he insisted. “To private business it offers not a threat but an opportunity.”25 After a wartime hiatus, the FHA responded to considerable pressure from thebuilders’lobby andresumed its multifaceted promotional efforts. In addition to launching an “economy housing” campaign in January 1949, designed to promote construction of smaller, more affordable singlefamily homes, FHA administrators made hundreds of appearances before industry groups, where they guided the private sector through the constant revisions o f the National Housing Act (such as the liberalization of terms on Title II loans, and cutbacks in agency activity during the Korean War). On occasion FHA representatives literally reprimanded private organizations for not doing more to accelerate borrowing and building.26 Meanwhile the celebration of free market principles grew even more pronounced. Administrator Raymond Foley set the tone in a September 1945 speech before New York financial and building interests, noting that “never in recent years has there been a more generally expressed agreement that the housing task of this nation is one to be done for the most pan by private enterprise.” He confidently predicted that once government restrictions on building materials were lifted, the nation would quickly meet its citizens’ housing needs solely “through the channels of private enterprise.” Variationson this story provided a chorusfortheFHA’s postwar talks and publicity efforts. In 1948 and 1949, builders in Illinois, Oklahoma, and Texas learned that their industry’s fate would be determined solely by “competitive supply and demand economics,” and they heard predictions about a spike in esr idential construction that would be a testament to the “determination of private industry to surmount the currentdifficultiesin.. .housing American families.” Mortgage bankersin New York City and builders in Wisconsin and North Carolina learned that it was “up to private industry as a whole” to jump-start the housing economy and produce more affordable housing. And FHA spokesmen assured California mortgage bankers that “adequate funds [were] available” for 27 D A V I D M. P. F R 6 U N D the financing of new housing projects, so it was up to private industry to build. Once housing starts picked up considerably, by 1951, realtors in Georgia and mortgage bankers in Washington, D.C., were reminded that the surge in suburban development had “been accomplished with private funds by private investors,” and that “every dollar” spent on government-guaranteed homes “is private capital and every property is privately owned.”Reinforcing the message were repeated threats to introduce so-called nonmarketalternatives if necessary. Administrator Franklin D. Richards told builders and lenders in Tennessee, for example, that unless thenation’sbusinesses met the needs of moderate-income families, they would have to acknowledge that “private enterprise is not equipped to do the job.” 27 This ambitious PR campaign represented only the agency’s most selfconscious effort to cast federal mortgage programs as nothing more than incentives to healthy market activity, Since the earliest congressional debates over the selective credit initiatives, advocates portrayed them as means to “unleash” frozen markets and to “unloosen” existing funds— what one administration official memorably called “sleeping capital.” National press coverage of New Deal reform dutifully repeated the message. This narrative accompanied policy debates throughout the postwar period, as well, both in legislative chambers and popular commentary on the suburban housing boom. Franklin Richards repeated the refrain in 1952, when he urged the House Banking Subcommittee to sustain the FHA mortgage insurance program by stressing that his agency “does not make loans and does not plan or build housing.” “I want to emphasize the fact that every cent of money advanced under any FHA plan is private capital of private lenders. It is important, too, to take into consideration that this is a completely voluntary system. The $25 billion in oal ns that the FHAhas insured is solely because of [sic] the confidence of lenders and borrowers in the system.”Fittingly, the agency’s self-published history, issued in 1960 to commemorate its twenty-fifth anniversary, described the FHA as a “do-it-yourself program.” The FHA was “a helper only,” the pamphlet explained, and its achievements were those of “the builders, lenders, realtors, and other members of industry with whom it has worked, and the American families whose enterprise and integrity have made the program succeed.”23 Meanwhile this story about the market friendliness of federal credit operations and, crucially, the market imperative for racial segregation permeated local conversations about suburban growth, housing, race, and rights. In many cases the links between federal intervention and local discussions were quite concrete. Businesspeople requested copies of as M A R K E T ING T H E FREE MARKE T administrators’ speeches, which they distributedtolocal lenders who were “not as yet converted”—as one mortgage banker wrote in 1939—or reproduced in trade publications and industry yearbooks. Others jumped wholeheartedly into the promotional efforts, including Albert Merrill, president of the Kroger Grocery and Baking Company, who promised to display FHA advertising in each of his 5,000 retail stores, to place FHA literature in the 700,000 grocery bags that left those stores daily, and to inform his 22,000 employees and 20,000 stockholders about federal programs. Suburban residents, realtors, and elected officials defended racial restrictions by pointing to the racial compatibility guidelines from FHA appraisal manuals. Private sector publications continued to reproduce those guidelines—if in a more muted form—well into the 1960s. 2 ‘ In other cases the evidence of the state’s impact is more indirect, as its arguments about markets and race were reproduced by whites in numerous local conversations and political mobilizations to protect their suburban neighborhoods. Residents read local news coverage describing the postwar housing boom as the fruit of free enterprise and describing public housing as an unwarranted strain on the market, no doubt unaware that thesecolumnsoften originated asindustry or government-produced press releases. Realtors, builders, lenders, and local FHA officials—long exposed to th e government’s promotional efforts and its appraisal guidelinesspoke regularly at meetings of homeowners’ associations, zoning boards, and other groups debating development. In these venues they defended exclusion—of apartments, factories, or black people—solely by citing market imperatives and the principles of real estate economics, rules that required the separation of “incompatible” land uses. Indeed local businessmen and officials might return from regional meetings with FHA representatives to join with their neighbors and constituents in hard-fought battles against what they called “invasion”—be it by an individual black family, a federally subsidized, low-income housing project, or a terracestyle multifamily development. 30 Most important, this story about postwar markets quickly became foundational to whites’ defense of racial exclusion. The state originally promoted the free market narrative—its celebration of the economy’s soundness and the pluck of the nation’s producers and consumers—to deflect criticism of its new interventions in private financial markets. But in doing so it simultaneously told a story about the difference between thosewhohad”madeit” in postwar America and those left behind. Thus it provided white businesspeople and consumers with what seemed a sensible and specifically nonracial defense of racial exclusion. Indeed, FHA officials were among the first to invoke the free market narrative 29 D A V I D M. P f S C U ND specifically for this purpose when challenged by civil rights activists to abandon the agency’s discriminatory practices. Indignant at the charge that federal programs were discriminating by race, housing officials countered that they were merely respecting the demands of the free market for property. One familiar statement of this defense was presented in 1941 by FHA Administrator Abner Ferguson, when he appeared before a meeting of the Negro Business Conference in Washington, D.C. To an audience waiting for some sign that the FHA would open all of its programs to minority businesspeople and consumers, Ferguson instead offered a refrain already familiar to black leaders, and one that they would hear repeatedly throughout thepostwar decades.31 “In any consideration of how the FHA program can benefit Negroes,” he began, “certain things must be kept in mind.” “The law is one providing insurance of loans made by private capital to property owners for the repair… [or] purchase.. .of homes.. .Nowhere in the law is there any compulsion upon financial institutions to make these loans. And, of course, in our form of Government the Federal authorities cannot dictate to whom a private financial institution shall or shall not lend its depositor’s [sic] funds.” His agency was “enjoined by the law,” Ferguson continued, “to insure only those mortgages which are economically sound,” and this required, among other things, that eligible properties be located in neighborhoods that are “desirabl[e] as a place of residence over a long period of years.” Black occupancy, he explained, had been deemed undesirable by the market itself—not by the FHA. Indeed, Ferguson repeatedly declared the agency’s commitment to racial fairness, promising that it would give all qualified borrowers “the same consideration… regardless of race, color or creed.” But he coupled this promise with an important qualification, the logic of which is vital for ourunderstandingofpostwar racial politics. When the FHA “applied]” its programs “to Negroes,” he explained, it encountered “two specific problems,” the first of which he named “marketability.” “FHA operations, of course, do not create the market. The national income, genera! business and industrial activity, the shortage or supply of materials and labor, local customs and many other conditions of a given moment are the barometers of the real estate market.” And because of this, “the FHA can only follow the trends in the existing market and accept it as we find it, giving reasonable consideration to what changes may be expected in the future. The second problem, he continued, was “income,” explaining that since most blacks were poor, they could only “be provided adequate housing… through Government subsidy.” Ferguson concluded by reiterating that “what we can do for [Negroes) is limited by the law, and in }» M A R K ETI NG T H E FREE MARKE T no sense are those limits to be construed as discrimination because of race.”32 FHA and other housing officials rehearsed a version of this defense throughout the 1940s, 1950s, and 1960s, while their programs, despite constant pressure from civil rights activists, continued both to subsidize suburban homeownership—for white people only—and to segregate public housing. Not even the Supreme Court’s defenseof the principleof equal protection, first in Shelley v. Kraemer (1948) and later in Brown v. Board of Education (1954), altered officials’ stance. Within the FHA and the other programs reorganized under the Housing and Home Finance Agency (HHFA) in 1947, white officials steadfastly refused to interfere with what they portrayed as objective market considerations. Eisenhower’s nominee to run the HHFA, Albert Cole, even announced during his 1953 confirmation hearing that he would not stop local authorities from maintaining racial segregation in federally funded programs. Then throughout his six-year term he obstructed enforcement of nondiscrimination, insisting that the government could not “legislate] acceptance of an idea.” Meanwhile the FHA, while eventually disavowing its support for race restrictive covenants and removing the explicitly racial language from the Underwriting Manual, continued to encourage the use of privately published appraisal standards that identified racially “mixed” occupancy as an actu* arialrisk. Even during the 1960s, prominent whitehousingofficialsechoed Cole’s position, despite the 1962 Executive Order banning discrimination in federally supported housing, despite passage of Title VI of the 1964 Civil Rights Act, and despite Robert Weaver’s tireless efforts, both as HHFA administrator and secretary of the new Department of Housingand Urban Development, to enforce the new fair housing mandate. The height of the modern civil rights era saw most white housing officials repeatedly declare their commitment to racial equality, while insisting, in the same breath, that market dynamics and “local custom” nonetheless trumped the government’s fair housing obligations. 33 Two fallacies of this “free market” defense for discrimination deserve special note because both would figure prominently in whites’ postwar efforts to exclude minorities from suburban neighborhoods. First, despite officials’claims, federal selective credit programs did, indeed, discriminate because of race. They never discriminated against blacks solely because of income differentials, as Ferguson and other FHA officials often insisted, or simply because inexorable market forces demanded it. Rather, they discriminated by asserting and enforcing the principle that the presence of a black resident posed a calculable threat to white economic interests, a principle that guided practices in both the insured and conventional } i D A VID M . P. FR E U N D mortgage markets.” Federal interventions set the rules for this new credit market and federal operations made its existence possible. Thus, to deflect responsibility for discrimination to the “market” is, in effect, an admission of federal culpability. Second, and equally important, public housing was not the only form of government subsidy in the postwar era. Selective credit programs actively subsidized the market for private housing, and thus suburban growth. And they did so almost exclusively to the benefit of whites. The gap between the real impacts of federal intervention and the conventional wisdom about its role in shaping the postwar suburb helps explain a key paradox of suburban politics. Why did so many whites insist, so earnestly, that their preference for segregation was not racially motivated? And why did they see suburban growth and their own prosperity simply as products of fair competition in a free market for property and neighborhoods? Their investments in these claims turn out to be related. For most whites were encouraged to see racial and class segregation as the result of healthy competition in a robust market for private property. It followed quite naturally that defending the spoils of that market was not an ideologically motivated act. Supporting residential segregation, whites believed, need not have anything to do with racial preference. Thus the state’s deep Involvement In the market for homes helps us understand why in local communities nationwide—and particularly in the fast-growing postwar suburbs—white people enthusiastically embraced a story about the free market origins of their prosperous, homogenous neighborhoods and the new lifestyle that economic growth had made possible. Of course government policy and its aggressive promotional efforts do not alone explain suburban whites’ views on race, property, and homeownership. There was no shortage of paeans to free enterprise in Cold War America, while advocates of fair housing and public housing were regularly targeted for their un-American or socialist tendencies. Popular film, television programming, and print advertising also contributed to the pervasive celebration of market values and free enterprise. But the FHA’s efforts suggest that the state itself, in concert with its private-sector allies, played a critical role in shaping whites’views about suburban growth and their insistence that minorities posed a calculable threat to the free market for residence. On the issues of homeownership, neighborhood integrity, and race, federal programs helped popularize the story that suburban growth and prosperity, as well as the racial segregation and poverty that accompanied it, owed nothing to the state’s own efforts. n 

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