Temporary National Economic Committee (TNEC)

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TEMPORARY NATIONAL ECONOMIC COMMITTEE (TNEC)

Congress established the Temporary National Economic Committee (TNEC) in June 1938 to analyze the performance of the American economy. Created on the recommendation of President Franklin D. Roosevelt as part of the policy re-evaluation provoked by the recession of 1937 and 1938 and the persistence of the Great Depression, the TNEC initially was intended by the administration to focus on economic concentration and monopoly power. But the committee ultimately had a much wider scope and unexpectedly provided a more important forum for Keynesian fiscal policy than for antimonopoly efforts. The TNEC conducted extensive hearings for more than two years, from December 1938 to March 1941, and published dozens of volumes of the testimony it received and the detailed economic studies it commissioned. Its final report and recommendations in 1941, coming in the much different atmosphere of defense mobilization and economic recovery, had little impact or influence.

The creation of the TNEC reflected long-term and short-term worries about business concentration and monopoly power as well as concern about the performance of the U.S. economy in the 1930s. A belief that excessive business concentration harmed the economy and gave big business too much political power was an important issue for many Progressive-era reformers, especially Louis Brandeis. With the Great Depression and the election of FDR, Brandeis and his followers argued for a renewal of anti-trust policy. Instead, the "First New Deal" of 1933 turned to the National Recovery Administration (NRA) and the suspension of antitrust laws in an effort to achieve recovery by means of planning and controls worked out with business. But the NRA was unsuccessful and was declared unconstitutional in 1935. Anti-monopoly advocates inveighed against the NRA for permitting cartellike arrangements that kept prices high and fixed production limits to the detriment of expansion and recovery.

Proponents of anti-trust policy had more influence in the mid-1930s, beginning with the "Second New Deal" of 1935. The Public Utilities Holding Company Act was designed to eliminate or reduce the sprawling conglomerates that dominated the electrical power industry. New Deal tax proposals, though watered down by Congress, had anti-trust dimensions, including the graduated corporate income tax in the 1935 Revenue Act and the undistributed profits tax in the 1936 Revenue Act. Legislation in 1936 and 1937 sought to protect small retailers from the economic power of chain stores. Anti-trust policy did not, however, become central to New Deal efforts, even though some liberals continued to blame the ongoing economic troubles on the deleterious effects of economic concentration.

Then in the late summer and fall of 1937, the recession of 1937 and 1938 struck. Sending economic indexes down more sharply, though not more deeply, than at the onset of the Great Depression, the "Roosevelt Recession" set off a policy debate in the administration. Although there were proponents of balancing the federal budget and of moderating tax, regulatory, and other policies that upset businessmen, the principal debate involved spending and anti-trust factions. Led by Leon Henderson, the anti-monopoly position held that business concentration and monopoly behavior had constricted production and pegged prices too high; the result was diminished investment, production, employment, and income that had prolonged the Depression and triggered the 1937 and 1938 recession. Spending advocates, led by Marriner Eccles and Harry Hopkins, maintained that federal deficits had underwritten the moderate expansion between 1933 and 1936 and that when FDR had turned to more restrictive fiscal policy the economy had tumbled again. In their view, a return to spending could fire the economy.

But the anti-trust and spending approaches were not mutually exclusive. Indeed, Leon Henderson was a leading proponent of both positions. In April 1938, Roosevelt announced two new policy initiatives. In the middle of the month, he said that he would embark upon a renewed spending policy, especially on relief. Then on April 29, he sent Congress a message recommending a "thorough study of the concentration of economic power in American industry."

Anti-monopoly policy had important supporters in Congress, among progressive Republicans as well as among Democrats. On June 14, 1938, Congress passed legislation creating the Temporary National Economic Committee (TNEC), and Roosevelt signed it on June 16. But where Roosevelt had anticipated that an administration committee would carry out the study, Congress stipulated that half of the committee would come from the executive branch, with the other half from Congress. Six members of the TNEC represented the administration, among them Thurman Arnold, who in 1938 also began his service as the activist new head of the Justice Department's Anti-Trust Division. From Congress, the TNEC included three senators, with Wyoming Democratic senator Joseph O'Mahoney serving as committee chairman, and three congressmen, with Texas representative Hatton Summers the committee vice-chairman. Two Republicans, one from the Senate and one from the House, were named to the committee. Leon Henderson served as executive secretary. Congress also gave the TNEC a broad charge going beyond studying economic concentration, to include "the effect of the existing tax, patent, and other government policies upon competition, price levels, unemployment, profits, and consumption."

The TNEC began its hearings in late 1938. The committee heard testimony from 552 witnesses, who provided a variety of information and recommendations. Some of the witnesses argued for stepping up anti-trust policy, in order to break up the monopolies that they thought kept the economy from expanding to full production and full employment. Others called for accepting economic concentration, on the grounds that it was inevitable and had its positive aspects, but said that more stringent and effective regulatory policy should be implemented in order to reduce the harmful impact of concentrated economic power.

The most noted and influential testimony came in the spring of 1939 when proponents of compensatory deficit spending, led by Harvard economist Alvin H. Hansen, came before the TNEC. By that time, Keynesian ideas as adapted and disseminated by Hansen and others, had become more widely accepted, and more economists and New Deal officials had become persuaded of the potential of compensatory fiscal policy. And the better performance of the economy following the 1938 spending decision seemed to corroborate the potential of a spending policy to stimulate the economy. The testimony on behalf of fiscal policy as the path toward recovery thus came at an especially opportune time—all the more as the economy continued to turn upward as defense spending increased in 1939 and 1940.

The TNEC worked on, hearing from more witnesses and conducting studies of the U.S. economy. Ultimately dozens of volumes of testimony and economic analysis were published, providing important information and insights. But increasingly the TNEC became peripheral. The economy was recovering, the advocates of Keynesian fiscal policy grew in numbers and influence, and anti-trust efforts seemed divisive and an impediment to economic mobilization as big business began to convert to war production. After expanding the Justice Department's anti-trust efforts, Thurman Arnold encountered increasing opposition by 1941.

When the TNEC issued its final reports and recommendations in 1941, they attracted little attention. Except for helping to focus attention on Keynesian fiscal policy, the hearings had changed few minds. Reflecting the wide-ranging nature of the testimony and investigation, the recommendations lacked consistency and often clarity and seemed irrelevant to the new priorities of defense mobilization. The hearings and reports did provide an extraordinary array of viewpoints and information, but ultimately that had nothing like the impact envisioned in the spring of 1938. And the economic recovery of the war years, produced by the spending that underwrote mobilization, confirmed the triumph of Keynesianism over anti-monopoly policy.

See Also: KEYNESIAN ECONOMICS; NATIONAL RECOVERY ADMINISTRATION (NRA); PUBLIC UTILITIES HOLDING COMPANY ACT.

BIBLIOGRAPHY

Brinkley, Alan. The End of Reform: New Deal Liberalism in Recession and War. 1995.

Hawley, Ellis W. The New Deal and the Problem of Monopoly. 1966.

Lynch, David. The Concentration of Economic Power. 1946.

May, Dean L. From New Deal to New Economics: The American Liberal Response to the Recession of 1937. 1981.

John W. Jeffries

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