ready established, there is no reason to duplicate them. They have had experience in this field for the last 30 years or more.

Chairman SULLIVAN. Why, specifically, do you favor the approach that you describe in preference to other alternatives?

Mr. LAWRENCE. You mean using the marketplace?
Chairman SULLIVAN. Yes.

Mr. LAWRENCE. Because I think this is the only way you can do it. When the Government steps into something, it creates an artificiality that should not be there. And I think that buying and selling of commodities is done by some of the sharpest or smartest people in the world, and I don't think the Government can compete with them.

Frankly, if you had an economic stockpile, you simply couldn't let it sit still like the national Strategic and Critical Materials Stockpile. It would have to be kept up to date and revolving all the time. If it got sizable enough, as big as the current stockpile of $7 billion, the influence of any stockpile manager on the market could totally disrupt the marketplace on any material. This is the thing I would be very fearful of.

Chairman SULLIVAN. Mr. Lawrence, I would like to know who made the decision and how it was made in 1969, when 2512 million ounces of silver in the stockpile were suddenly declared excess. This happened to be, by coincidence, exactly the amount of silver the Mint said it needed to produce 150 million Eisenhower silver dollars proposed by a group of western Senators.

Mr. LAWRENCE. I guess we made a quick review of the requirements and supply, and we found we suddenly had 25 million too much in the stockpile.

Chairman SULLIVAN. So it was made by your group itself?
Mr. LAWRENCE. That is right.

Chairman SULLIVAN. As it subsequently turned out, the Mint was unable to sell 150 million proof and uncirculated silver dollarsMr. LAWRENCE. That is right.

Chairman SULLIVAN [continuing]. Either as Eisenhower commemoratives or as Bicentennial commemoratives. But that is not the point. How did it happen that the stockpile was found to have exactly 251⁄2 million ounces of surplus silver?

Mr. LAWRENCE. I don't remember all of the details. I remember enough of it to remember that this was what was done, we suddenly found in a new review we had 25 million ounces of surplus.

Chairman SULLIVAN. I was involved deeply in that fight.

Mr. LAWRENCE. I remember that, too.

Chairman SULLIVAN. And I did everything I could to prevent it, because silver was going up and up and up.

Mr. LAWRENCE. That is right.

Chairman SULLIVAN. No matter how the decision was reached, how can we maintain much confidence in the integrity of the present stockpile goals if they are subject to this kind of manipulation for purely political purposes, when stockpile objectives can be changed overnight for such flimsy reasons as making 150 million coins that couldn't be sold in the volume anticipated?

Mr. LAWRENCE. Well, I think General Bray gave you the answer there, when he said he intended, when he completes the study, to come

up to the Congress and explain his methods and show them the figures. Every time he changes, whoever is in charge of the stockpile, if they kept the Congress informed, you wouldn't have this type of manipulation.

Chairman SULLIVAN. Going back to the Cabinet manipulations that you mentioned, what Cabinet officers were involved in doing the manipulating? Benson, Wilson, McKay, Freeman, Udall? Who and when?

Mr. LAWRENCE. On lead and zinc, I can't remember his name, but he was an Assistant Secretary of Interior. This was brought out in the Symington hearings back in 1962 and 1963. I don't remember his name, but he was an official of one of the lead companies.

Chairman SULLIVAN. Do you remember what year that was? If you can recall either of them through any file or notes you might have, I wish you would supply it for the record.

Mr. LAWRENCE. I will be glad to.

[Material submitted for the record by Mr. Lawrence follows:]

Assistant Secretary of the Interior, Felix Wormser, also vice president of St. Joe Lead before and after Government service.

The years were 1953-57.

Chairman SULLIVAN. And then I wish you would give us some specific examples that may be ancient history, but I think it is history we need to know.

With that, I thank you for your very frank answers. When you get the transcript, if you want to add to your answers, we would appreciate it.

Now is our next witness here?

Mr. GALE. Mr. Parsky is still engaged in a hearing downstairs.
Chairman SULLIVAN. Have you been down to find out?

Mr. GALE. Yes; he is still down there.

Chairman SULLIVAN. What are they putting him through? Mr. GALE. I believe he is testifying on the boycott problem. Chairman SULLIVAN. We are not going to have any more hearings on this.

Mr. GALE. I would suggest we could submit his statement for the record, and if you have some questions you would like to have him answer, we could submit the answers for the record.

Chairman SULLIVAN. We would love to have him answer some of our questions out loud. We set this hearing date at his convenience, really. Mr. GALE. I understand that, but unfortunately he just can't be here.

Chairman SULLIVAN. Will you please deliver that message to him? Mr. GALE. Yes; I will.

Chairman SULLIVAN. I understand that it was his testimony that we didn't get until 10 o'clock last night. So I think he has been a very disappointing kind of witness. I don't know what he is afraid to answer. That is for the record.

Mr. GALE. I am sure he is not afraid to answer any of the questions, but unfortunately his schedule is very tight.

Chairman SULLIVAN. I know. But we specifically set this hearing date today for his convenience, and we think it is important, too. I don't know what other committee he is appearing before, but we set

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this hearing at his convenience and now find he is tied up elsewhere. I wonder if you could go down and find out about how long before Mr. Parsky can come up, and we will wait for you?

Mr. GALE. All right.

[Short recess.]

Chairman SULLIVAN. The committee will come to order, please.

Our next witness is Mr. Gerald Parsky, Assistant Secretary of the Treasury for International Affairs.

STATEMENT OF GERALD L. PARSKY, ASSISTANT SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS, ACCOMPANIED BY HAZEN GALE, DIRECTOR OF RAW MATERIALS AND OCEANS POLICY, TREASURY DEPARTMENT

Chairman SULLIVAN. We are sorry you weren't here, and had to send for you, but we are glad to have you now.

We are sorry, too, that we didn't have your testimony in advance so that we could really study it, until last night. We have given each witness 15 minutes for oral testimony before questioning, and we will follow that same pattern.

So, will you start?

Mr. PARSKY. Yes; please accept my apology on two accounts, Madam Chairman. I have just completed another testimony this morning on the subject of the Arab boycott, and the only reason that I wasn't able to adhere to the request of the committee to supply the testimony ahead of time was that I have three testimonies in a short period of time and I apologize for that.

But I appreciate the opportunity to discuss with you the question of economic stockpiling. I think it is a subject that in recent months has received a great deal of attention. The concern that we have is that there may not have been as yet enough economic analysis of this important subject.

We in the Treasury have a considerable interest in this concept, because of its implications both for U.S. commodity policy and its potential substantial cost. We have only recently managed to relieve American taxpayers of the burden of excessive grain stockpiles; further, we have significantly reduced our strategic stockpiles to levels which are more consistent with our real needs and we are studying additional steps that can be taken.

Underlying these policies is our belief that we should be doing everything we can to minimize Government involvement in commodity markets. Our emphasis should be on strengthening the func tioning of market forces which can best determine price and allocate supply. I would like to summarize some aspects of the testimony and I will submit the entire statement for the record.

Chairman SULLIVAN. The entire statement will be made a part of the record.

Mr. PARSKY. My prepared text provides an assessment of what our commodity policy in the United States is. Our fundamental objectives are to promote sustainable noninflationary growth for the U.S. economy. With respect to our policy abroad, we have been seek

ing to minimize the Government's interference with the marketplace, and at the same time we have recognized that a number of other countries, especially those that are heavily dependent on one or two commodities, have suffered economic difficulties due to sharp fluctuations in their export earnings.

We have come forward internationally with a number of what we believe are very constructive proposals aimed at strengthening the functioning of the marketplace. We have in the past, and I believe we should continue to resist any proposals that are aimed at distorting the market, that are aimed at fixing price above the market, or that are aimed at in fact interfering with natural forces of supply and demand.

At times in the international environment today people have indicated that the United States can't be isolated, or that we are not forthcoming enough. I happen to believe we have been very forthcoming and we do need to be concerned that we cooperate with other countries, but not at the expense of abandoning an economic system that we believe in or an economic system we believe will benefit our country and the rest of the world.

We recognize, I think, that ideally operated stockpiles might reduce volatility in certain markets in certain circumstances. But we feel that the cost of such stockpiles are potentially of such magnitude that they must be analyzed carefully to establish that the benefits substantially outweigh the costs.

Although in theory stockpiles can play a valuable role in reducing excessive volatility in certain markets, we have found in practice that stockpiling to stabilize international commodities trade has had little impact on U.S. markets. For example, the operation of the international tin buffer stock has had no appreciable effect on U.S. prices of tin. The principal difficulty with effective stockpiling is the identification of probable future shortages far enough in advance to accumulate the needed stocks without unduly disrupting the market.

We think the private sector is far more able than the U.S. Government to identify potential shortages. They can take actions to build private stockpiles to balance the risk that industry faces. For example, there currently is a great deal of concern about the future supply of chromite ore and chrome alloys because much of the U.S. supply originates in Rhodesia, where political events could disrupt supply. Private companies are aware of this potential difficulty and have on hand inventories of 370,000 tons of chrome, enough to satisfy U.S. consumption needs for nearly 1 year.

A second difficulty is the potential disruption of a commodity market that can be caused by the buying and selling of the material by the stockpile activity, as was demonstrated by the U.S. acquisition of a tin strategic stockpile in the early 1950's. The United States began buying at the beginning of the Korean conflict to build a reserve against a possible cutoff of southeast Asian supplies. The purchases coincided with major increases in purchasing by private firms to guard against the same potential supply interruption, thus causing large price increases.

Most proposals for stockpiles involve general objectives, such as to moderate price fluctuations, to assure a flow of supplies, or to promote

a stable investment climate. The problem, however, is that those proposals rarely specify the detailed objectives that can be translated into operational criteria that will guide a board of directors or a stockpile manager. Before any stockpile system can be initiated, many questions must be answered.

For example, for which commodities will stockpiles be instituted? What criteria will be used in selecting a commodity? What level of "normal" prices or supplies is that country willing to set as targets! What is the cost to government of building stockpiles of sufficient size to reduce price fluctuations by a certain amount and how much is the United States willing to budget for a national or international stockpile program? How large an agency for information analysis and management will be required? By how much will government stocks displace private stocks in a stockpiling scheme? What is the longrun impact of economic stockpiling on production and consumption of a commodity? What are the external and intangible benefits to the public that would justify government stockpiling in excess of normal private stockpiling?

If thorough investigation of these issues shows clear net benefits for a particular commodity and improvements in market efficiency, then we are certainly willing to give full consideration to implementation of a stockpile scheme for that commodity.

But we believe that we should be wary of sweeping programs that are devised solely on the basis of the recent oil embargo or the 1972–74 commodity price boom. Studies have shown that capital will be scarce enough during the next decade without the U.S. Government diverting scarce capital resources into nonproductive stocks and away from needed investment for the goods and services demanded by the world

economy.

In my prepared text I have outlined the types of stockpiles and their potential effectiveness. Since the primary concern of most economic stockpile proposals is industrial commodities, I would like to focus on the two major types of economic stockpiles, buffer stocks and contingency reserves. Even though there is only one international buffer stock in operation, the model for such stocks usually calls for management in accordance with agreed rules, so that the buying and selling activities of the stockpile manager will counteract rapid changes in prices for the particular commodity. The manager has a stock of commodities and a fund of cash that he can use to prevent low prices by buying commodities or to prevent high prices by selling from the stockpile.

A successful buffer stock operation must have a skillful governing board that can set the floor and ceiling prices, so that prices are stabilized, but are not sustained at artificially high or low levels. The manager's effectiveness will be limited by the funds available to buy when prices are low, and the stocks on hand to sell when prices are high.

Buffer stocks are attractive because of their theoretical simplicity— buy low and sell high. In practice, however, buffer stocks are usually supplemented by direct supply management, usually export or production controls, in order to limit stockpile funding requirements. Exact estimates of the cost of financing buffer stocks are difficult to