STATEMENT OF P. C. TURNER, PRESIDENT OF THE MARYLAND FARM BUREAU, PARKTON, MD.

Mr. TURNER. I am a farmer, and at the present time president of the Maryland Farm Bureau.

I simply want to endorse the S. O. F. and B. F. on its recommendation for control of inflation.

I want to inform this committee that I have never in my life known such interest on the part of farmers as they have shown in this bill. I not only have found that over in my own State of Maryland, but I spent a week at the convention at Chicago, where I found they were fed up on labor. They cannot see any justice in having a price-control bill without bringing labor under it.

This is a Nation set up with a promise of equality for all and special privileges for none. We believe in that statement. We believe that any such bill that does not include labor, the biggest item in work on the farm as well as industry, will mean economic chaos. With it in force without such inclusion will mean chasing something nebulous all the time.

As this is an attempt to set prices on farm products, and if wages are not to be considered, we are not going to stop inflation. I think it is silly to even contemplate such an attempt.

Gentlemen of the committee, I thank you for this opportunity to appear before you, and want to say that I am sorry Senator Radcliffe is not present, for with him here I would feel more at home.

Senator HUGHES. Well, I am his neighbor, being from Delaware. Mr. TURNER. I thank you.

(Thereupon Mr. Turner left the committee table.)

Senator BROWN (presiding). We will now hear from a representative of the Independent Petroleum Association of America.

STATEMENT OF RUSSELL B. BROWN, GENERAL COUNSEL, INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA

Mr. BROWN. Mr. Chairman, I want first to discuss the theory of the bill just a little as it applies to our people, and then I want to refer to two of the sections, and subsection (e) also.

My name is Russell B. Brown, and I am representing the Independent Petroleum Association of America. Our address is 500 Investment Building, Washington, D. C.

Senator BROWN. You mean subsection (e) of the amended bill, page 7 of the committee print?

Mr. BROWN. Yes. I first want to explain who we are. My people are the independent producers of crude petroleum, and our membership runs throughout the United States and in all the oil-producing

states.

The independents as distinguished from the general petroleum situation are those that are primarily nonintegrated, engaged in one branch of the industry or another, and not associated with the large or the Standard group.

We do have a vital concern in this proposed price regulation, in that price is a very dominant factor in determining whether or not we will

have sufficient crude petroleum to meet the demands made upon us in this emergency.

All governmental agencies concerned about an assurance of a supply have repeatedly expressed concern as to whether or not we will have such an assured supply of petroleum during the war emergency. Therefore they have appealed to us to continue a regular and accelcrated production.

Our situation is peculiar in that we do not have the reserves that we can go out and draw from at will. We must first search and find reserves, and then we draw from those reserves after they are located. We have two problems: the first is to stimulate the search for reserves so we will have them available; and the second is, to conserve the reserves and not waste the production after we have discovered them.

The first problem involves the question of a continuation of the normal search for oil. And I will say, by the way, that that comes about largely through the work of our people; the independent discovers from 75 to 76 percent of our new reserves. I mention that because of the effect of price-fixing, as will develop later in my state

ment.

That means that we have to keep alive a stimulated activity. During the past 3 years we have drawn from our reserves at a much larger rate than we have found now reserves, which means that the amount of permanent reserves is being reduced every year.

During recent times and under changed conditions it has been more difficult to operate, to get materials, and there is more discouragement. I might say by reason of the pegging of the price there is more discouragement on the part of those producing from small reserves, and to the extent that we are drawing an increased amount from the reserves we now have and are abandoning those reserves as it may become necessary. Once abandoned they are, in effect, lost to our permanent reserve field.

Senator BROWN. Are you worried about the oil prospector?

Mr. BROWN. Yes; to a large extent. He is very much in the picture, and also the marginal producer is in our group. They are the two, one going out and hunting for reserves, and the other holds onto the marginal wells.

Senator TAFT. And the work is getting more expensive?

Mr. BROWN. Yes.

Senator BROWN. Then you feel that the price of the oil is a material factor in the operations of prospectors?

Mr. BROWN. Yes.

Senator BROWN. I can see that it would be in regard to the marginal man.

Mr. BROWN. That is the one referred to mostly.

Senator BROWN. I did not have an idea that the prospector looking for an oil well would be so much affected, because it is quantity he must find.

Mr. BROWN. Here is where that section of the law might affect us: Assuming that we set up a policy of buying oil for the Government. That assumes that you are just buying it and storing it. You cannot buy a reserve very well. I mean new reserves; you can buy known reserves. But nobody knows where the new reserves are. It takes the element of pioneering to do that. So, in any effort to save

the price by buying up the additional supply required simply holds the price down so that there is no impulse for a man to go out and hunt for new reserves.

Senator TAFT. Do you mean to suggest that a policy to hold the price of oil down, so that your people might have to sell at a loss, is an unwise policy for the independent oil producer?

Mr. BROWN. So far as we are concerned it would not stimulate exploratory work because they would be faced by a fixed price, and that would not help them. It would help the marginal wells to some extent, perhaps.

Senator BROWN. Is oil in the class of strategic products?

Mr. BROWN. Yes. It probably ranks right at the top in that list. Senator TAFT. If gasoline gets much higher nobody will be able to use it.

Mr. BROWN. I am afraid of that, and of some other things that might enter into a restricted use of it. The President early in the emergency placed the specific duty upon the Secretary of the Interior to coordinate oil activities, looking to an assurance that everything in connection with the Government would properly function to keep the production of oil going along.

Senator BROWN. Under this bill the Price Administrator is prohibited from taking any action in regard to oil. There is nothing saying it is in the strategic and critical materials classification. The section to which you refer confines its operations to corporations created by the R. F. Č.

Now, what do you want to do about subsection (e)?

Mr. BROWN. I want to point out the difficulty we are having with the general price administration without some form of standard. The bill does not provide a sufficient standard to indicate to the Price Administrator what basis he shall use in fixing prices.

Senator BROWN. As to the date October 1 to October 15, how does that affect you?

Mr. BROWN. That would hold down exploratory work very materially. The nearest standard is the one suggested in the last of that, which refers to the period 1919 to 1929.

Senator BROWN. You mean the critical section?

Mr. BROWN. Yes.

Senator BROWN. You are not an agriculturist?

Mr. BROWN. No. That is the nearest standard for raw materials and it may be that the committee would like to consider it. I have been searching for a standard I might suggest to the committee but have not found one.

Senator BROWN. You think 1929 would be the most desirable from your standpoint?

Mr. BROWN. I think it would be desirable in the matter of raw materials. Also, since the price of labor is a factor in the price of commodities, any legislation establishing the control of prices should also include control over wages. I have two studies here. First, I have a study of wholesale prices, applying that formula to all commodities, that I would like to submit for your record. That would show that petroleum under the present basis is about 60 as compared with 92 of the general average. That shows what I mean as to the low price, and why the 1941 price would not be agreeable to us.

(The table referred to is here made a part of the record, as follows:)

TABLE 16

Wholesale prices on Dec. 6, 1941, compared with parity price level as determined by S. 1955

Mr. BROWN. I have two graphs that are premature in their development in that I did not get to them in time, but would like to show them to the committee, and then will draw a better graph and submit it if you desire it done. One indicates the price of crude petroleum 36 gravity Oklahoma and Kansas, which is taken as the ordinary average base. Beginning back in 1914 and from the time the first war started the price started up immediately and went to a very high price during 1920.

It was reduced drastically in the first part of 1921. Comparing that with other raw materials, we find that almost the exact trend was followed, and if you apply the 1919 to 1929 base it will strike an average not a great deal above the present and very greatly below the height it went to during the last war. I suspect the same result would be effective now with an assurance of a price that would bring about an established level and stable condition so far as petroleum is concerned.

I want to introduce in that connection a letter that was sent to one of the trade papers. I just received it from Mr. Harold L. Ickes, Petroleum Coordinator for National Defense. In it he discusses the general needs of the petroleum industry and points out the necessity of further exploratory work and other things necessary to be done. I would like to offer that for the record, if I may.

Senator BROWN. Yes. You may place it in the record.

(The letter referred to and submitted by the witness will be found at the conclusion of his statement.)

Mr. BROWN. The lack of a formula in this present price administration has caused a great deal of uncertainty. One of the purchasers of our crude petroleum has just recently put out a full statement showing his willingness to pay more for crude and showing his efforts to get the approval of it through the Price Administration. It is a comparatively short statement, and I would like permission to put it into the record.

Senator BROWN. It may be placed in the record.

(The document referred to and submitted by the witness will be found at the conclusion of his statement.)

Mr. BROWN. As an indication, further, of the need of a formula, the Price Administrator, in response to that letter, gave out a statement on October 10 that he was making a study of price conditions in cooperation with the Petroleum Coordinator. So we looked to that for relief, and then we find that on December 7 there was another statement in which he says that he is cooperating with the Tariff Commission in a study. In other words, there are two separate agencies, neither one of which is available to us, to determine what chance we have of getting an understanding of our price situation. Any price that does not take into consideration the necessity for exploratory work for more oil will not get the new reserves that the folks in the Government think are necessary. It is not a lack of interest; it is not a matter of striking. That is not the point at all. It is just that the exploratory man cannot get the money because the pay-out is so long on the low prices that the banks cannot afford to loan the money.

So, that phase of it I would like the committee to consider. The only formula that I have found so far that suggests possibilities is that indicated by the 1919 to 1929 base.