Mr. SAWHILL. Yes, sir.

Mr. UDALL. So that population growth and other things are taken into account.

Mr. SAWHILL. Yes, sir. The problem is in putting an allocation program into place to regulate an industry as complex as this one and being given about 3 or 4 weeks to do it, we made some mistakes, naturally, and I think one of the mistakes was that we have too many forms to fill out and too much bureaucracy to get this done. But, we are moving more gasoline into Arizona and I think in February the situation is going to improve.

Mr. UDALL. OK.

Mr. DELLENBACK. Mr. Chairman, before we stop I want to make it clear upon the record that Arizona is not the only State.

Mr. SAWHILL. It is one.

Mr. DELLENBACK. We have been in touch with your office and I think you are aware of the fact that part of the reason the chairman and I are both so deeply concerned about this is Arizona is one of the Stateson an additional information basis.

Mr. SAWHILL. Oregon, Connecticut, New Jersey, and Florida, I heard this morning.

Mr. DELLENBACK. This handful does seem to be in a uniquely disadvantageous position. We appreciate what you have done so far. I really mean it, because your office has been very helpful.

Mr. SAWHILL. We are going to continue.

Mr. DELLENBACK. I don't want to point the finger at you, but I expect the job to be done at this point.

Mr. SAWHILL. We are moving rapidly-as rapidly as we can.

Mr. UDALL. We are going to continue this hearing at 2 o'clock with some more important witnesses. We thank you all.

The subcommittee stands in recess.

[Whereupon, at 12:25 p.m., the subcommittee recessed, to reconvene at 2 p.m. the same day.]

AFTERNOON SESSION

Mr. UDALL. The subcommittee will be in session, continuing our hearing from this morning; and we will now hear as the first witness, Mr. Louis O. Kelso.

Mr. KELSO. Mr. Chairman, I would also like to ask Mr. Kurland, Washington counsel for Bangert & Co. to sit with me.

Mr. UDALL. We would be pleased to have him.

STATEMENT OF LOUIS 0. KELSO, GENERAL COUNSEL, ACCOMPANIED BY NORMAN G. KURLAND, WASHINGTON COUNSEL, BANGERT & CO., INC.

Mr. KELSO. Mr. Chairman, we are here on behalf of Bangert & Co., a San Francisco investment banking firm that specializes it is a new firm, almost between 2 and 3 years old-that specializes in the use of a financing technique designed to provide low-cost capital for corporate enterprise; and in the course of doing that, to build ownership of capital into employees.

We would like to address ourselves to several major questions that we believe are extremely relevant to the financing and to the design of

the enterprise that carry out the self-sufficiency in energy programs. Most importantly, perhaps, though it is not the first one we will take up, is the question of where in the United States do we get the funds to finance the incredibly capital-intensive enterprises that are going to be necessary to make us self-sufficient in energy, irrespective of the particular technique or techniques that ultimately solve that problem.

Mr. UDALL. Let me interrupt you, Mr. Kelso, just for housekeeping purposes.

We had scheduled three witnesses this afternoon, and I had promised to conclude by about 4 o'clock, so I was proceeding within the general framework of about 30 to 40 minutes for each of the three witnesses, with appropriate time for questioning by the members. And I wanted you to bear that in mind in interpreting your presentation. I notice that you have prepared testimony, and I think formally we should enter this into the record, and then I would appreciate your doing what you started to do before we interrupted, which is to hit the high points of your testimony and to give us what recommendations you have that would help us.

Mr. KELSO. We would appreciate very much having entered into the record the written testimony by Mr. Kurland and myself, entitled "Financing Growth and Environmental Protection To Strengthen the Market Power of Consumers."

Mr. UDALL. This will be entered into the record.

[The prepared statement of Mr. Kelso and Mr. Kurland follows:]

STATEMENT OF LOUIS O. KELSO, GENERAL COUNSEL, AND NORMAN G. KURLAND, WASHINGTON COUNSEL, BANGERT & Co. INC.

FINANCING ECONOMIC GROWTH AND ENVIRONMENTAL PROTECTION TO STRENGTHEN THE MARKET POWER OF CONSUMERS

The Impending Crisis in the American Economy

*

Deepening crisis and fast-approaching depression signal profound discontinuities or systemic flaws in the economies of all nations today, but most importantly for us, in the economy of the United States.

So far-reaching and profound are the symptoms of impending trouble that only one explanation is plausible: there is a fundamental structural defect. The nature of this system-defect becomes unmistakably clear when one examines the overall picture. The production of economic goods and services, including, of course, their distribution, involves physical phenomena. So does the consumption of goods and services. Thus production and consumption, even allowing for erratic human behavior, must of necessity be governed by elementary mathematical principles.

Specifically, the mathematical logic of a market economy is simply-double entry bookkeeping.

The costs of producing goods and services (including profits as costs) necessarily equal the market value of the goods and services produced in any given time. The gross national product (more accurately the net national product) is simply a summation of the aggregate costs and profit shares in the process of production for a given time.

The double entry bookkeeping logic of a market economy meets the test of the Aristotelian concept of economic justice: an exchange of things having equal value.

Similarly, the double entry bookkeeping logic of a market economy conforms to universally shared concepts of morality under which each individual's outtake from the economy is supposed to be based on and equated to his productive input into the economy. The Puritan Ethic is simply an expression of that *Copyright 1974, Bangert & Co. Incorporated.

same morality, of production-labor. Thus the Puritan Ethic holds “if you don't work, you can't eat."

The double entry bookkeeping logic of a market economy also conforms to the concepts of freedom in our free society, for it recognizes that human freedom is not secure for individuals or families who are not self-sufficient, i.e., who do not produce the economic equivalent of what they wish to consume. Nor is there freedom for individuals in a society who as taxpayers must be coerced to support strangers, because some portion of the population is not self-supporting.

The double entry bookkeeping logic of a market economy also conforms to the common experience concerning human dignity. There can be no dignity for an individual who is dependent upon charity or upon the coerced support of others who cannot support themselves.

Finally, the double entry bookkeeping logic of a market economy is indispensible to the existence of the institution of private property, so far as it affects the factors of production, i.e., labor, or the human factor, and capital (land, structures and machines) or the non-human factor. An individual's private property in his labor power or in his personally-owned capital must be freely exchangable for things of equal value.

Part of the Problem Lies in Understanding Technological Change

Since technology is the source of affluence for those families and individuals (except thieves) who are affluent, it is natural that we should turn to an analysis of technology to see why it does not produce a high standard of living for all; why it does not enable each family or single individual to produce more so that, under the logic of the system, the family or individual will enjoy a higher level of real income.

The function of technological change is to shift the burden of production off the human factor and onto the non-human factor, and to enable men, with diminishing personal toil, to produce levels and kinds of goods and services that labor alone could never produce. This is a fact beyond dispute. Thus the real function of technological change is to alter the input mix into the process of economic production. The dimension of this change within historical times can be illustrated approximately by the following diagram:

*Copyright 1974 Bangert & Co. Incorporated.

**Estimated on the assumption that the value of each factor's input is determined in reasonably competitive markets

Note that labor accounted for well over 90% of economic input from the beginning of history until almost the dawn of the Industrial Revolution. But from that date (usually placed at about 1775) forward, the constantly accelerating nature of modern technology asserted itself so that in 1974, the ratio of labor input to capital input that characterized the economy of our ancestors in 10,000 B.C. is almost reversed, and capital-in the physical sense-is the dominant input factor.

But Who Owns the Capital?

While the quantitative studies indicate some 30 million shareholders in the U.S., the qualitative studies show virtually all the stock in the top 5%. As to indirect ownership, through financial intermediaries such as insurance companies, bank trust departments and mutual funds, such investments are almost never acquired on a self-liquidating basis, so they do not make a net increase in the buyer's standard of living. They substitute income from capital for income from labor, but they rarely raise the economic productiveness of the individual. Such investments evidence a reduced present standard of living and the "storing" of purchasing power, subject to the effects of inflation, for future use. In our advanced industrial economy, it is rare indeed for one to acquire through personal savings a capital holding that would yield a viable income. On the degree of concentration of ownership of productive capital, see Robert J. Lampman, National Bureau of Economic Research, The Share of Top Wealth-Holders in National Wealth, 19221956, (Princeton: Princeton University Press, 1962) pp. 23, 108, 195; (Wharton School Stock Ownership Study, Proceedings of the American Statistical Association, Business and Economic Statistics Section, 1963), pp. 146–168; McClaughry Associates Inc. Expanded Ownership, the Sabre Foundation, Fond du Lac, Wisconsin, 1971. At pages 101-198 is a comprehensive survey of the studies on The Distribution of Wealth in the Twentieth Century, by Professor James D. Smith of the Pennsylvania State University. All of the studies surveyed confirm the general accuracy of the Lampman analysis.

Clearly, if the effects of the logic of our double entry bookkeeping market economy were not counteracted by a host of detrimental measures designed to radically alter the distribution of income, the picture would look something like this: