piles are to be created, they should really be limited to commodities for which the United States is primarily dependent on imports. That seems clear to us. The stockpile should not be used in an effort to control prices because the wisdom of any group of people is not up to judging the marketplace. Madam Chairman, since you were kind enough to refer to the times when we were talking about coinage, there is no clearer example of this than the U.S. Government experience with silver.

Mr. Bergsten was concerned that the tin stockpile wasn't big enough. Well, the silver stockpile in the beginning of the 1960's was 2 billion ounces, which is equivalent to 5 years' production and/or consumption of silver. In spite of the existence of that enormous stockpile, in spite of the fact that the Treasury had a very fundamental reason for trying to control the silver price they didn't want the coins to disappear from circulation and be melted down and in spite of all the powers of the U.S. Government, the U.S. Government managed to sit on the lid of the silver price at $1.29 an ounce until 1968. Then when the silver reserve was beginning to run out and they couldn't sit on the price any longer, the market exploded and the price of silver this morning is $4.80, roughly four times the level the Government had tried to protect. Why? Because the demand for silver basically is greatly in excess of the potential supplies of silver.

So I'm saying to you that if you really want to use economic stockpiles as a means for trying to control prices, you're talking about enormous sums of money. The oil economic stockpile that Mr. Bergsten referred to, I think, is supposed to be 800 million or 1 billion barrels of oil, so you're talking $8 to $10 billion, and when you go down the list of commodities you're going to find very large sums involved. So I want to say-and I'll be glad to elaborate on this during the question period-I do not believe that there is likely to be effective cartel action in hard minerals comparable with the oil experience. I differ seriously with Mr. Bergsten on that point. And while he referred to oligopoly and the limited number of producers, the facts are exactly the opposite. In 1950, when the Paley Commission made its studies of the resource position of the United States, there were only five countries in the world producing as much as 100,000 tons of copper a year. Today there are 13, and there are at least five others that are going to be substantial producers of copper in the future. There has been, in the case of most materials-not all-an increase in the number of potential suppliers. Furthermore, most of these materials are much more subject to changes in cyclical demands, drops in periods of poor business, sharp increases in periods of good business, so that an effective cartel will be very difficult. There has been an attempt to control the price of tin through the International Tin Agreement. It has not been conspicuously successful, even though the consuming and producing countries signed the agreement.

So I want to emphasize that as far as I'm concerned individually, and speaking for our industry as a group, we do not believe that the economic stockpile, if it is created, should be used for the purpose of price control. It should be used as an instrument for mitigating the effects of an unexpected interruption in supplies and I will give you a very homely example.

Mr. Bergsten doesn't seem to think platinum is terribly important to the U.S. economy, but the fact is that the whole program for dealing with automobile car emissions is based on the use of a device in which platinum is the catalyst for dealing with automobile emissions. I think it is an essential industrial material. There are only three sources of platinum of any consequence in the world: Canada, the Union of Soviet Socialist Republics, and South Africa. It's conceivable that given the present troubled political situation in Africa, should there be a civil war, those mines in South Africa might be closed down. It's quite conceivable and I can see the desirability of having an economic stockpile of platinum to be drawn on under those circum

stances.

So interruptions in supply; yes. Control of prices, I think it's a mere myth.

So, Madam Chairman, I see you looking at your watch, and I'm sure I've used my time. Thank you very much.

Chairman SULLIVAN. Thank you, Mr. Strauss.

[The prepared statement of Mr. Strauss follows:]

STATEMENT OF SIMON D. STRAUSS, EXECUTIVE VICE PRESIDENT, ASARCO INCORPORATED, ON BEHALF OF THE AMERICAN MINING CONGRESS

Madam Chairman and members of the subcommittee, my name is Simon D. Strauss. I am Executive Vice President of ASARCO Incorporated, a diversified producer of some 24 different metals and minerals. I appear on behalf of the American Mining Congress, a trade association. I serve as Chairman of its Committee on Minerals Availability.

Your interest is in economic stockpiles, a matter that has been receiving Congressional attention since the Arab oil embargo and the quadrupling of oil prices by the Organization of Petroleum Exporting Countries in early 1974. The U.S. government really began stockpiling in early 1940 when legislation authorized the Treasury Department to purchase modest quantities of certain strategic materials for which this country is heavily dependent on imports-tin, rubber, chrome and manganese were among the first items included in this program. With the fall of France, the Roosevelt Administration became greatly concerned over access to imported raw materials and created three subsidiaries of the Reconstruction Finance Corporation-the Metals Reserve Company, the Rubber Reserve Company and Defense Supplies Corporation-to deal with the problem. They were intended to assure adequate supplies of strategic materials for the greatly expanded defense effort initiated following Hitler's victory in Western Europe.

I joined the staff of the Metals Reserve Company in March 1941, ten months before U.S. entry into the Second World War and remained in government service until the end of 1945. During this period Metals Reserve became the sole importer of metal and mineral products into the United States, acting in concert with the War Production Board with regard to quantities purchased and with the Office of Price Administration in regard to the prices at which the imported materials were distributed to U.S. industry-either for war or for essential civilian purposes. In addition, to stimulate domestic production of strategic materials, Metals Reserve made long-term contracts with domestic producers to develop new mineral properties or to expand capacity of existing properties. When the war ended Metals Reserve held title to substantial quantities of essential metals and minerals needed either in a wartime or peacetime economy. Thus when, in 1946, Congress enacted basic stockpile legislation, Metals Reserve was able to transfer large tonnages of essential metals and minerals to the strategic stockpile.

As the Committee recognizes, the 1946 legislation authorized stockpiles purely for national security purposes. The quantities of each individual commodity to be stockpiled were set by the administrative agencies, the initial responsibility resting in the Army and Navy Munitions Board which coordinated the views of the other government agencies and departments. Later this responsibility was

transferred to the Office of Emergency Management. These stockpile targets were classified information. Private industry was consulted only in order to define specifications for the commodities purchased. Its views were not sought as to the proper amounts to be held nor was information published as to the quantities actually in government possession or under contract for future delivery. Global figures were published showing aggregate dollar value of stockpiles, not broken down by individual commodity.

U.S. involvement in the Korean War in the early '50s greatly accelerated interest in stockpiling. Until early 1957 there was a period of active stockpile procurement by the government. Purchases were made in a variety of ways. Some material was acquired under the Defense Production Act, enacted by Congress during the Korean War; some material was acquired by barter in exchange for surplus agricultural commodities of a non-strategic nature; and much material was bought from producers or dealers on a short-term bid basis.

Shortly after John F. Kennedy became President in early 1961, he made a critical evaluation of the strategic stockpile program and concluded that stockpile holdings were excessive. As a result, under the chairmanship of Senator Stuart Symington of Missouri, a prolonged investigation of the entire stockpile program was carried on in the early '60s. Stockpile objectives for individual commodities and the quantities actually held became public knowledge for the first time. A critical reevaluation of stockpile objectives resulted in substantial reductions. As a consequence the government by the mid-'60s embarked on a program of liquidating many of its holdings-either in whole or in part.

To illustrate, of the six major nonferrous metals held in the government stockpile-aluminum, copper, lead, nickel, tin and zinc-the government since 1963 has completely liquidated its holdings of aluminum, copper and nickel; has greatly reduced its holdings of lead and zinc; and has even substantially reduced its holdings of tin, a commodity for which this country is enitrely dependent on imports, originating primarily in countries of the Third World.

President Nixon in the Spring of 1974 announced drastic reductions in stockpile objectives. The new targets were based on the belief that strategic stockpiles would be needed only to cover emergency needs for one year as a military emergency was unlikely to last longer. Should it last longer, it was argued, new sources could be developed or substitute materials could be used. Under previous programs stockpile targets had been based on other assumptions-whether a war would last three or five years; whether certain countries could be considered reliable suppliers; whether the nature of the war would be similar to World War II or the Korean War; or whether the war involvement would be a nuclear holocaust.

When stockpile objectives are based on such radically variable assumptions enormous changes occur each time a new set of assumptions is postulated. These changes in turn disrupt the normal pattern of the commodity markets and are of great concern to the mining industry. Miners claim no expert knowledge as to how long a war might last or what the nature of a war might be. Experience, however, prompts those in the mining industry to feel that it is usually safer to rely on facts rather than assumptions.

Thus no one can gainsay this country's dependence on imported materials as measured in trade figures collected by the Bureau of the Census. No one can dispute the fact that this country is almost entirely dependent on imports of certain virgin metals and ores-tin, metallurgical chrome ore, platinum metals, and manganese are examples. For other materials the United States is virtually selfsufficient. And for others it is only partially self-sufficient.

Experience also has taught the mining industry that new production of mineral commodities cannot be developed in a one-year period. Also, though one material may be substituted for another, the design changes and the necessary tooling process take much longer than one year.

For these reasons many in the mining industry differed wtih President Nixon's 1973 assumptions with respect to stockpile policy. It appeared that sales of stockpile material newly classed as surplus were to be used for non-defense purposes-to attempt to control prices, then rising sharply, and perhaps also to narrow the budget gap between the government's receipts and disbursements. In resolutions adopted at meetings in 1973, 1974 and 1975 the American Mining Congress has urged that stockpile objectives should be based on a mathematical formula related to actual import experience for individual commodities.

The average level of imports for a period of, say, three years would be used to determine the initial stockpile objective. This would be reviewed every few years. Should domestic sources be developed and U.S. import dependence lessened, the stockpile objective would automatically drop. Should domestic resources be depleted and U.S. dependence on imports increase, the target objective would rise.

Further, the American Mining Congress recommends that objectives should vary with the degree of import dependence. Three possible classifications would be (a) commodities for which imports represent more than 75% of total supply; (b) commodities for which imports represent 50 to 75% of total supply; and (c) commodities for which less than half the supply is imported.

This Committee is considering whether there should be an economic stockpile in addition to the strategic stockpile. The original concept of the strategic stockpile unfortnately has not been adhered to in recent years. The original legislation clearly spelled out that strategic stockpiles were to be held for military purposes and military purposes only.

The Symington investigation of the early '60s indicated that at times stockpile objectives had been increased to accomplish purposes other than military ones to assist in foreign trade or to stimulate domestic employment. More recently, during the period of substantial stockpile liquidation, releases from the stockpile have obviously been used at times to try to control prices or to meet industrial needs when sudden shortages developed but when a military emergency had not been declared.

In the view of most mining people the strategic stockpile program has had a disruptive influence on commodity markets. The heavy buying in the early '50s by overstimulating production, caused expansion of capactiy which led to surpluses when the stockpile ceased to buy toward the end of the decade. During the '60s the drastic reduction in stockpile objectives and the heavy liquidation of stockpile materials in turn inhibited expansion of capacity, thereby laying the groundwork for the shortages which developed in 1973 and 1974. The industry is apprehensive that untimely government buying and selling will interfere with normal operation of markets.

Nevertheless the industry, recognizing the importance of national security, supports the basic concept of a strategic stockpile-particularly for those materials that are not produced in large quantities within the nation's boundaries. Such stockpiles save manpower, transportation facilities and scarce earth-moving equipment in times of genuine military emergencies.

The oil embargo and subsequent sharp rises in oil prices caused understandable apprehension in government circles and among the public generally about interruptions in the flow of other vital commodities. This Committee's interest in economic stockpiles-as distinct from strategic stockpiles-develops from that concern. The shortages in other commodities experienced in late 1973 and early 1974, however, should be viewed in proper perspective.

Apart from oil, they did not arise from interruption in supplies. Production of most commodities was normal and there was no political interference with trade flows in other commodities such as occurred in the case of the oil embargo. The shortages that developed were due to an enormous expansion in demand, caused only in part by the industrial boom of 1972 and 1973. Added to this genuine increase in consumption were demands created by speculative purchases due to currency uncertainties, fear of cartels that might be formed, disillusionment with securities on the part of many investors who were advised to buy commodities instead, and, finally, as prices responded to these non-trade demands, a rush by purchasing agents to increase inventories.

The business recession actually began in late 1973 but was not widely recognized until mid-1974. By the third quarter of 1974 the fear of shortages began to subside. Instead of adding to inventories, purchasing management began to reduce stocks. Speculators switched out of commodities into high-yield bonds or savings deposits. Concern over cartel action abated as the major differences between the oil industry and other commodities became more widely recognized. In future spot shortages of certain commodities may again occur when business is good or when supplies are temporarily interrupted by military developments, labor strikes, or natural disasters. In the mineral industry supply cannot be quickly increased because of the long lead time and heavy investment required to create new capacity. On the other hand, demand is rapidly influenced by changes in the political, economic or military climate.

Since shortages will develop from time to time, the proposal for an economic stockpile seems at first glance to be eminently reasonable. The first such stockpile is referred to in the Bible, when Joseph interpreted Pharaoh's dream as a forecast of seven good years followed by seven lean years. Accepting that interpretation. Pharaoh stockpiled grain and cattle during the seven good years and sold them to a populace that might otherwise have starved during the seven lean years.

The Bible does not specify how Pharaoh financed this operation but, since his authority over his subjects was absolute, one must presume he had less difficulty in funding this operation than might be the case today with a similar attempt on the part of the U.S. government.

The amounts of money that could be involved in a comprehensive economic stockpile are enormous. Its effect on the markets would be great. The theory of buying in times of surplus and selling in times of shortage sounds simple but putting it into effective practice is difficult.

The mining industry believes that if economic stockpiles are created they should be limited to those products for which the U.S. is heavily dependent on import sources-say, at least half of the total supply. Furthermore, the stockpile should not be used to try to control prices-an exercise that will inevitably be futile and counterproductive in the long run for internationally traded commodities. The stockpile, if created, should be used only to assure supplies to U.S. industry in the event of an interruption in the normal flow of imports-a move comparable with the Arab oil embargo. A limited program of this sort, if adopted, should be administered by an independent publicly owned corporation comparable in structure with Comsat or Fannie Mae. Conceivably such an organization could finance purchases through the issuing of its own debt obligations backed by the value of the stockpiles.

For many reasons, which this witness will be glad to elaborate during the question period if the Committee wishes, there appears to be little likelihood of effective cartel action in hard minerals comparable with the oil experience. U.S. consumers have not been denied access to supplies of vital hard minerals from foreign sources. The market mechanism does function in the long run. Shortages of minerals, when they occur, will prove temporary. With few exceptions known reserves of the major minerals are greater today than at any time in the past. The sources of these minerals are more numerous. For example, since the end of World War II the number of Free World countries producing large quantities of nickel has expanded from three to seven. Similar diversification in supply sources has occurred in copper, zinc, bauxite and in many other metals and minerals.

Government management of economic stockpiles would involve large sums of money, would create serious problems of possible market disruption, and would entail further proliferation of the bureaucratic structure. On the whole, therefore, the mining industry does not support economic stockpiling. However, if it is to be undertaken, then the limitations outlined with respect to the commodities involved and the provisions for release should be borne in mind. Thank you for this opportunity to present our views.

Chairman SULLIVAN. Now Mr. Stanley, it's your turn.

STATEMENT OF TIMOTHY STANLEY, PRESIDENT, INTERNATIONAL ECONOMIC POLICY ASSOCIATION

Mr. STANLEY. Thank you, Madam Chairman. I'm happy to join this distinguished panel today.

The International Economic Policy Association is a non-profit research group which has been studying public policy questions affecting the international economic position of the United States for some two decades. We have had the advice of industry experts on our Committee on National Resources on the two reports we have published on raw materials and foreign economic policy. The views I express today draw upon this research but they are my own views and do not necessarily represent the opinions of our organization as a whole.