vision for the coordination of physical resource programs. Whether such coordination takes place by bringing all of the bureaus and agencies presently concerned with resource policy in under one big umbrella, or whether it is done through the establishment of a White House coordinating body, or whether it is done by fixing clear responsibility on a designated planning group. I don't know. But there is no doubt that any one of these choices is better than nothing at all-which is the way it is now.

Question 6. To what extent might economic materials stockpiling remove the need for the expansion of existing or anticipated industrial capacity, thereby helping to ameliorate the large industrial "capital gap" predicted by some economic observers?

Answer. No. The economic stockpiles would consist of materials of the same grade and in the same form as are normally imported. The purpose of the economic stockpile would be to prevent market manipulation by producer countries acting with or without the active or even passive involvement of the resource controlling MNC's. It is clear that it is not possible to stockpile a sufficient amount of any material to satisfy U.S. domestic requirements for any long periods. The stockpile would be a deterrent, not an alternate source of supply. Therefore it would still be necessary to develop a capability for substituting alternate sources of supply in case the first deterrent didn't work. There would be a need for other measures to backstop the economic stockpiles. These measures would include the development of stand-by capacity. I am thinking here of standby capacity at several stages of the materials industry process, beginning with the development of new mines and following through to smelting and refining capacity, perhaps even through to primary fabrication.

There are low grade deposits in this country of many of the import dependent materials. These deposits are uneconomic to mine at present but they would become economically feasible in a tight supply situation. However, it takes months, sometimes years before new mines can reach full production. One of the reasons for the long lead time is the necessity to build an entire infrastructure; roads, milling and grinding facilities, shafts, even housing facilities for miners, etc. While it may not be possible to put all of this infrastructure into place ahead of time, why should we not get at least some of the development work out of the way thereby shortening the time between the decision to open up new sources of supply and full production from that source? In this connection, it seems to me that the construction of such stand-by facilities would provide a very useful form of public service employment-which would serve the double purpose of providing work for the unemployed.

Another kind of stand-by measure which should be considered is the development of plants to process substitute materials, such as the use of non-bauxitic clays for the production of alumina. Here again, the stand-by plant would be a backstop, serving as a complement rather than a replacement for the economic stockpile. If the stockpile should not be an effective deterrent to market manipulation, and as the price of alumina produced from bauxite rose to the point where it neared to cost of production of alumina from non-bauxitic clays, the stand-by plant would come into operation.

An effective materials policy should not rely solely on any one measure, such as the creation of economic stockpiles. It should consist of a blend of both positive and defensive actions. The creation of economic stockpiles is of course a defensive action. This should be coupled with an aggressive program of federally supported materials research and development, along with a continuing effort to reach agreement with the producing nations; first through the establishment of bi-lateral commodity agreements and eventually through international agreement.

MR. STRAUSS' RESPONSES TO ADDITIONAL QUESTIONS FOR THE

RECORD

Question 1. Has your organization any views on some of the multilateral solutions that have been proposed for materials problems, such as "buffer stocks" or international reserves, producer-consumer agreements, or the International Resource Bank?

Answer. The experience with the International Tin Agreement tends to make AMC skeptical as to the long-term merits of buffer stocks and international agreements. Because almost all the world's tin supply moves in international commerce, because the number of major producers is limited, because most of the major consumers have participated in the agreement, tin seems almost an ideal commodity for such an undertaking. During the twenty years of its operation, the agreement has worked fairly well during periods of relative economic stability, but it has failed to stabilize the market in periods of violent change such as 1973-75 (see also the response to question 4 in the preceding series). There are far greater difficulties in the case of many other commodities than in tin and therefore less chance of success in working out agreements over the long term. There are advantages in producer-consumer dialogues. The International Lead-Zinc Study Group has been a useful vehicle for governmental consideration of trends in those two commodities. A similar effort has been made in tungsten, and copper is now very much to the fore as a possible candidate for a study group. The International Resources Bank proposed by the United States at the recent Nairobi meeting seems to be only in the formative stage. A mechanism for facilitating investment in resource industries in the third world is probably desirable, but since there already exist the World Bank, the International Finance Corporation, and the International Monetary Fund, one may wonder why it is necessary to create a new instrumentality.

Question 2. The American Mining Congress seems to endorse stockpiles for only a single purpose-immediate relief to manufacturers during temporary or spot shortages. It does not endorse stockpiles to stimulate employment or to control price rises caused by scarcity. How does AMC justify this preference for the industrial sector and the shutting out of the consumer or of the unemployment problem? Aren't these elements also vital to economic security?

Answer. AMC has suggested economic stockpiles be restricted to those commodities for which the U.S. is heavily dependent on imports. It is unclear whether the reference to employment in the question is with regard to employment (a) in domestic production of the commodities; (b) in production of the commodities outside the United States; or (c) in insuring the continued operation of the U.S. industries that use these commodities. I see the situation with respect to these three categories of employment as follows: (a) The domestic non-fuel mining industry accounts for only a small fraction of total employment in the country. The record indicates that employment in the domestic non-fuel mining industry is far more stable than in manufacturing or construction industries-it is in these industries that wide employment swings occur. If economic stockpiles are to be used for the purpose of stimulating employment, one might argue that the government should stockpile cars or housing. (b) The AMC does not believe the U.S. taxpayer should bear the cost of stimulating employment in production of commodities outside the United States. (c) There is no evidence that shortages of commodities have inhibited employment in consuming industries such as manufacturing or housing, apart from the effect of occasional strikes such as the copper strike in 1967-68. However, had there been a large stockpile of copper held for "economic" purposes at that time, the labor movement probably would have considered release of copper from the economic stockpile than to have been a strikebreaking tactic. The swings in employment in manufacturing and construction are caused by swings in demand for products and housing-not by shortages of raw materials. Conceivably an interruption in supply of certain commodities-I specifically cited platinum in my testimony-could cause employment problems in

domestic consuming industries in the future. Release of platinum from an economic stockpile at such a time would not only be "relief to manufacturers during temporary or spot shortages". It would also help to maintain employment and perhaps ameliorate price rises caused by scarcity.

It may be useful as an analogy to look again at the experience with the government's extremely large stockpile of silver with which it controlled the price in the early sixties. Over two billion ounces of silver was held; the cost to the government of this silver when purchased in the thirties and early forties was something over $1 billion. The value at the statutory value of silver for monetary purposes was over $2.5 billion. Were the holdings still intact today their value at today's prices would be over $10 billion. By law, until Congress repealed the circulation of silver certificates, much of the silver was backing for paper currency. During the period 1960-68 most of the silver in the stockpile was either sold outright by the government at prices ranging from 90¢ to $1.29 an ounce or issued in exchange for silver certificates. In 1968 the right to exchange silver for certificates terminated. For a period of two years the General Services Administration auctioned off most of the remaining silver at prices ranging up to about $2 an ounce. There now remains in government hands about 150,000,000 ounces of silver which is held in the strategic stockpile, a large portion of which is classified as surplus under the most recent stockpile objective now being reviewed.

It may be argued that the sale of silver by the government during the decade of the sixties helped maintain employment in the silver-consuming industries and that the sale also helped to control the price of silver to the consumer. However, the effect of those sales was to inhibit employment in exploration, development and production of silver; a considerable gap still exists between the world production and use. The price is now close to $5 an ounce so the stockpile of silver delayed but did not prevent a sizable price increase in the long run. At every stage of the silver program government administrators had to make decisions involving conflicts of interest between silver producers and consumers or involving the future of the government's own coinage program. The Congress played a role in many of these decisions. But now that the enormous pile of silver has been liquidated it can no longer act as a "stabilizer" of the silver price.

Should the government, having sold most of its silver at less than $2 an ounce, now build up an economic stockpile during occasional periods of price weakness (early this year the price was $4) in order to inhibit later sharp advances? And how much stabilization would such a program exert? Domestic mine production of silver is less than one-third of domestic consumption. This country is a large net importer. Does it need a stockpile as a safeguard against an interruption in imported supplies? To ask these questions with respect to silver illustrates the enormous problems, the conflicts and difficulties involved in an economic stockpile program-no matter how laudable employment stimulus or price stabilization may seem.

In sum, the question comes down to costs and benefits. The cost of an economie stockpile limited to those commodities for which this country is heavily dependent on imports would be relatively modest-the benefits could be substantial for employers, employees, and consumers alike. The cost of an all-embracing economic stockpile would be great and the effort to use it as a price-regulating medium would probably fail-for the reasons set forth in my testimony and in the responses already given.

Question 3. When mineral resources are increasingly becoming a tool in international diplomacy in a kind of economic warfare, how can one be sure that, as you say, "The market mechanism does function in the long run"? Doesn't such economic warfare upset all assumption about the operation of the market?

Answer. The ability of the developing nations to withhold supplies of most minerals from the market is extremely limited. Foreign mercury producers, for example, held meetings in early 1974 and agreed on a floor price of over $300 a flask for mercury (a commodity which the United States must import to supply most of its demand). Despite this agreement the price of mercury two years later is $110 a flask. The copper exporters talked of controlling the world price of copper-but were unable to prevent a sharp drop in the world price from $1.51 a pound to $0.53 a pound in a ten-month period. Only in the case of a very few commodities-those which are produced by only a small number of countries-is the economic welfare to which the question refers likely to succeed. With respect to these few AMC has indicated there may be some merit in a U.S. economic stockpile.

Question 4. Based on your experience and on the history of stockpile manipulation you have alluded to, do you have any specific suggestions for creating stockpiles that are proof against tampering, so to speak? Wouldn't a privately run stockpile likely be even more subject to unintended manipulation than a government-operated one?

Answer. A reference to stockpile manipulation was made by Mrs. Sullivan in her opening statement-see page 4 of the transcript. AMC agrees with the subcommittee chairman that the strategic stockpile was used for purposes other than the original intention. At the risk of appearing cynical, it seems relevant to observe that memories are short-that administrators, legislators and the public all tend to forget the original intent which caused enactment of much legislation. The AMC review of the strategic stockpile was intended to point up this fact, to underscore the way in which the assurances originally given to industry were forgotten, and to explain why this causes the mining industry to view the economic stockpile with serious misgivings. A large economic stockpile could well be regarded by some future Administration or Congress as a convenient vehicle for bridging budgetary gaps, and stockpiles could be liquidated not because of interruption in supplies or to stabilize prices or employment-they may be sold to raise revenues at a time when the market cannot readily absorb them.

The references to a privately-run stockpile is not understood. AMC has made no such proposal. All producers and consumers carry inventories of materials as an essential part of their business; they could not operate without stocks. These inventories may increase as a result of a deliberate decision; or they may increase involuntarily due to a change in business conditions. Serious market risks ensue from inventory changes and the managements of the individual companies have to bear the responsibility for the consequences.

Question 5. If a foreign government or governments intervene in the market to drive mineral prices up, why shouldn't the United States government use stockpiles as a form of counter-intervention to hold prices down and reduce disruptions in the economy?

Answer. As indicated in preceding responses, I am profoundly skeptical as to the number of commodities in which foreign governments could effectively intervene in the market to drive mineral prices up. For those few commodities where there appears to be a well-established risk, AMC has indicated there may be an argument for creating economic stockpiles. In some cases, as suggested by Mr. Stanley in his testimony, perhaps some of the strategic stockpile surplus could be transferred to such a category-after the latest review of strategic stockpile objectives has been completed. In the case of many of the commodities, however, the risk of effective foreign intervention does not appear sufficiently grave to warrant the cost of creating economic stockpiles.

Question 6. You indicated that the mining industry had some opposition to President Johnson's release of copper and aluminum from the Strategic Stockpile during the Viet Nam War. Taking what you understand to be prevailing industry opinion, under what kinds of conditions or scenarios would releases from the Strategic Stockpile be proper?

Answer. With respect to the strategic stockpile, the law provided that material may be released in the event of a national emergency. The law also provided that material surplus to stockpile objectives could be sold with the approval of Congress. The Kennedy, Johnson, and Nixon administrations created surpluses by changing the objectives. The objectives for aluminum and copper having been set at zero, all stockpiles of those two metals have been sold. There is therefore no question of the rules under which future releases of these two metals should be made. Somewhat ironically, within the last month the objective for zinc has been increased so that material previously deemed surplus and earmarked for sale is now no longer in that category. AMC has made some suggestions for determining stockpiling objectives on a formula based on facts rather than assumptions. Use of this formula would prevent the rather obvious manipulation of stockpile targets that has occurred in the past.

Question 7. To what extent might economic materials stockpiling remove need for the expansion of existing or anticipated industrial capacity, thereby helping to ameliorate the large industrial "capital gap" predicted by some economic observers?

Answer. Economic stockpiles in theory might have some utility as a "flywheel" to even out the ups-and-downs in commodity demand. However, reverting to the silver example, it is clear that even a very large stockpile cannot replace the need for expansion of capacity indefinitely.

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Question 8. The issue of the ownership and operation of an economic materials stockpiles is related to many aspects of the nation's private enterprise system. Is it realistic to expect that industries would stockpile necessary materials for economic purposes without governmental incentives? If not, what types of governmental incentives might be necessary to encourage industries to stockpile necessary materials for economic purposes?

Answer. A few large, financially-strong corporations that follow commodity developments closely may well find it profitable in times of poor business and low commodity prices to add to their inventories of such price-erratic materials as copper or tin. Most industries, however, lack the financial capacity to undertake such inventory accumulation. Therefore it is unlikely that much of this will occur. The suggestion has been made that tax incentives might encourage private industry to carry larger-than-normal stocks. The problem with this suggestion is that the public regards tax incentives given to private industry as loopholes. The depletion allowance given the mining industry to encourage exploration and development of mineral reserves is under attack now. An inventory tax plan would probably also be vulnerable.