We also assumed at that time in each of these contracts we put what we would consider accrued reserve to take care of the risk of the stuff that we might have to take.

Mr. REGAN. Be called upon to buy.

Mr. GUMBEL. Be called upon to buy. We naturally didn't figure when we had to buy material at 50 cents a pound that it would then immediately become waste also. We would assume if the market went down, it might go down to the pre-Korean price of, say, 25 cents, and therefore, we would set aside a reserve of the difference between what we had to buy, and what it would probably be worth to the extent that we might have to buy this material. But then there came an interpretation of the act, which said that when we entered into one of these contracts we would have to have appropriations to cover gross amount of the possible contingent liability. That is to say, when we enter into this tungsten program, and put a floor price of $63 a unit, that we had to figure and we had to get as much money to cover all the tungsten that would be produced for 5 years. For the tungsten program, that amounts to about $185 million. Well, in the first place, the $600 million which we thought would be ample, during this fiscal year, to take care of all our obligations, disappeared overnight practically when we got this interpretation.

Furthermore, when we went to General Harrison, or now Mr. Gibson, and told him we want to operate a little tungsten program, and everybody knows that tungsten is a small program, and told him it was going to cost $185 million, he would be less than human if he didn't back away for a minute and didn't want to take a look at it. The whole point of it is this, Mr. Chairman, that no business, no individual could operate anywhere in the world on this principle of the gross contingent liability. That means that when you sign a 20-year lease you have got to have the rent for 20 years in the bank. That means when an aluminum company builds a smelter to smelt aluminum, it is going to need electric power in large quantities, and since the contract is with Bonneville Power Administration for power for 20 years, they have to put aside that money.

As a result of this, this aluminum program, which we don't expect will ever cost the Government a dime, except for such aluminum as we are going to require the manufacturers to deliver for the stockpile, we have to appropriate $600 million.

Mr. REGAN. Right there, Mr. Gumbel, this $600 million that has already been allocated to rubber, tungsten, and to aluminum, and so forth, of that $600 million that has been allocated, do you have any estimate of how much you will be called upon to put out?

Mr. GUMBEL. A pure guess, Mr. Congressman, I would say a maximum of 75 to 100 million dollars.

Let Mr. Medley speak on that.

Mr. REGAN. All right, Mr. Medley, do you have the figures on that? Mr. MEDLEY. Well, there are two types of programs that have been financed from this borrowing authority of $600 million, Mr. Chairman. The first, the type that Mr. Gumbel just mentioned, that is the socalled underwriting contracts.

Mr. REGAN. Yes.

Mr. MEDLEY. And then the other type is the purchase and resale program, as we referred to it, such as your rubber program, where the Government has gone into the exclusive importation of rubber. In

those instances, sufficient funds have been allocated to take care of the time the rubber is bought until it is resold. In other words, how much money you have got tied up in inventory.

So, pursuing your question of Mr. Gumbel, of the $600 million, as of today, $432,340,000 has been allocated to the General Services Administration, and I am a little bit reluctant to put the individual figures for the individual programs into the record. I would be glad to make copies of this statement available to the committee.

Mr. REGAN. It is just the over-all idea here, that we authorize $600 million, and already that $600 million is frozen, it is gone, and yet, you do not actually need more than 75 to 100 million of that.

Mr. MEDLEY. Sir, of the funds allocated to us, let's say roughly 200 million, or say $225 million are used on these revolving-fund-type programs, to purchase and resale, the second category, and the balance, of $200 million, is strictly underwriting which, frankly, we don't expect to spend hardly any of it.

Mr. REGAN. That 200 million, that revolving fund, that is just a working capital.

Mr. MEDLEY. That is right, exactly.

Mr. GUMBEL. Mr. Chairman, I would like to give you a specific example of how this works.

Mr. REGAN. I would be interested.

That was car

Mr. GUMBEL. You take the machine tool program. ried on by the RFC during the last war. They signed contracts for $450 million. Those contracts were for the machine tool manufacturers to go ahead and build machine tools, and if he couldn't sell them to anybody else, he could sell them to the Government. It was a guaranteed market. Actually, in carrying out that program, the RFC suffered loses of about $5 million out of the $440 million.

Mr. REGAN. Do you have any figures

Mr. GUMBEL. They had to buy about $30 million.

Mr. REGAN. They had to buy how much?

Mr. GUMBEL. They had to buy about $30 million.

Mr. REGAN. So out of the $450 million on tooling, they actually invested $30 million?

Mr. GUMBEL. Yes.

Mr. REGAN. And got back from that $25 million, leaving them a loss of $5 million on a $450 million program?

Is that what we are up against in this program?

Mr. GUMBEL. In this program, we have to have $450 million appropriated.

Mr. REGAN. Did the RFC keep $450 million in their hip pocket ready to pay out during that period?

Mr. GUMBEL. They had unlimited borrowing authority.

Mr. ENGLE. Couldn't it be done by getting Congress to give you authority to make commitments?

Mr. REGAN. That seems to be the answer, if we had that program or interpretation under the present program, you would not be out of money today.

Mr. GUMBEL. That is right. To go a little further, take this aluminum program; these plants will not be built before another 18 months. Obviously, they can't deliver any aluminum to us before the plants are built, so we have no liability for the next 18 months, and a very slight liability thereafter.

Mr. REGAN. In other words, it would be another year before they actually turn out a product for you to buy, if you wanted to buy it? Mr. GUMBEL. Yes, sir.

Mr. ENGLE. How do you get around that?

Mr. MEDLEY. I was going to say this, the interpretation, Mr. Congressman, has been an informal one, by the general counsel of the General Accounting Office.

Mr. ENGLE. Probably a lawyer down there?

Mr. GUMBEL. They are the last word on the interpretations of laws. Mr. ENGLE. They are just one notch below an economist, which is way down.

Mr. GUMBEL. It would appear there would have to be a modification in the law before a change in financing could be brought about.

Mr. ENGLE. When we reenact it, if we do reenact the Defense Production Act of 1950, that is one thing we ought to be sure to take care of, isn't it?

Mr. GUMBEL. Yes.

Mr. REGAN. I think we better get that same attorney you have down there to give us some language, and then see that he stays on that same job, so that he can interpret his own language in such a way that he wouldn't take it up.

Mr. MEDLEY. I wouldn't know for certain, about this point, Mr. Chairman, but it was my understanding there was some consultation with the staff of the Appropriations Committee of the House also. Mr. ENGLE. Have you been a party to those conversations at all, Mr. Medley?

Mr. MEDLEY. Yes.

Mr. ENGLE. Can you submit the language to us?

Mr. MEDLEY. If the committee so directs, yes, sir.

Mr. ENGLE. Mr. Chairman, I would like to request the chairman make the request for the language, and some of us who are interested in this matter will follow up on it.

Mr. REGAN. Without objection, we will look to you, Mr. Medley, to furnish some language that your lawyer will approve.

Dr. MORGAN. In amplification of the point Mr. Gumbel made, just assume that for the next year, for 1 year, we decided to support the price of copper, lead, and zinc, at the present prices. Assuming that the total production of copper, lead, and zinc, for 1 year, would be around 3 million tons, and that the average price of all three would be about $500 a ton, in order for us to guarantee the current prices of copper, lead, and zinc, for 1 year, under this system, we would have to set aside $500 times 3 million tons, which would be $1,500 million. Mr. REGAN. Just for those three items.

Dr. MORGAN. That is right. Prudent engineering judgment based on our knowledge of the defense production program in the coming year would say that at best we would have to buy only a few percent of the total supply of copper, lead, or zinc, for 5 years to come. Now, it was this budgetary inhibition that resulted in our overcertification, as I explained to the committee yesterday. Starting out on the one basis we were certifying all sorts of programs to the GSA to the extent that we had certified about $900 million worth, and then we came upon that interpretation, and that just stopped the program. Moreover, the estimate of $1 billion for supplemental appropriation for fiscal year 1951 was not made under this policy of having to set

aside the full amount for the program, and we are very much afraid that the $1 billion will be dissipated very quickly.

Mr. REGAN. You are going to be out of snuff, before morning. Well, you get that language up here right away, Mr. Medley. Don't send it through the regular course.

Mr. MEDLEY. Yes, sir.

(The information is as follows:)

(Presented below are two suggested amendments to the Defense Production Act, as submitted by the General Services Administration at the request of the subcommittee, both of which were designed to permit the financing of minerals and materials programs through a prudent reserve method rather than the present restrictive maximum contingent liability method. Also presented below is the language of the amendment subsequently adopted by the House Banking and Currency Committee at the instigation of members of this subcommittee. This amendment became an important provision of the Defense Production Act of 1950, as amended, when signed by the President on July 31, 1951.) SUGGESTED AMENDMENT TO THE DEFENSE PRODUCTION ACT OF 1950 SUBMITTED BY GENERAL SERVICES ADMINISTRATION AT THE REQUEST OF THE SUBCOMMITTEE ON MINES AND MINING

Amend section 304 (b) of the Defense Production Act by inserting after the comma following the word "Provided": "That the amount necessary to be borrowed in connection with a proposed or existing underwriting contract or other instrument creating a contingent liability on the part of the United States shall be such amount as the borrowing official or the head of the borrowing agency or corporation shall from time to time determine to be sufficient to constitute a prudent business reserve against such contingent liability in the light of then known and foreseeable conditions and circumstances, but each borrowing official. agency, and corporation shall report monthly to the joint committee established by section 712 of this Act and to the Appropriations Committees of the Senate and House of Representatives the gross contingent liabilities incurred under such underwriting contracts and other instruments, the amounts determined to constitute prudent business reserves against such liabilities and any changes in the amounts determined to constitute such reserves against existing contingent liabilities: And provided further,".

ALTERNATE AMENDMENT TO THE DEFENSE PRODUCTION ACT OF 1950 AS SUBMITTED BY THE GENERAL SERVICES ADMINISTRATION AT THE REQUEST OF THE SUBCOMMITTEE ON MINES AND MINING

Amend section 304 of the Defense Production Act by adding a new subsection (d) as follows:

"(d) Guaranties, underwriting contracts, and other contracts and commit. ments creating a contingent liability on the part of the United States may be made under sections 301, 302, and 303 and subject to the limitations thereof without regard to the limitations of existing law with respect to the availability of funds in relation to the gross contingent liability so created, but such limitations shall be applicable in connection with each such contract and commitment to such amount as the President may from time to time determine in the light of then known and foreseeable conditions and circumstances to constitute L prudent business reserve against the contingent liability created thereby."

DEFENSE PRODUCTION ACT AMENDMENT OF 1951, AS ADOPTED, TO ELIMINATE MAXIMUM CONTINGENT LIABILITY METHOD OF DETERMINING AMOUNT OF RESERVES REQUIRED FOR FINANCING EXPANSION PROGRAMS AND MATERIAL ACQUISITIONS Subsection (b) of section 304 of the Defense Production Aet of 1950 is amended by striking out the proviso in the first sentence and inserting in lieu thereof the following: "Provided, That the amount borrowed under the provisions of this section by all such borrowers shall not exceed an aggregate of $2,100,000,000 outstanding at any one time: Provided, further, That when any contract, agreement, loan, or other transaction heretofore or hereafter entered into pursuant

to section 302 or 303 imposes contingent liability upon the United States, such liability shall be considered for the purposes of sections 3679 and 3732 of the Revised Statutes, as amended, as an obligation only to the extent of the probable ultimate net cost to the United States under such transaction; and the President shall submit a report to the Congress not less often than once each quarter setting forth the gross amount of each such transaction entered into by any agency of the United States Government under this authority and the basis for determining the probable ultimate net cost to the United States hereunder."

Mr. REGAN. In other words, it takes 8 days to get a letter from one department back here in the mails, so if you will send a carrier pigeon down here, we would like to have that language as quickly as possible.

DPA FUNDS FOR FOREIGN PRODUCTION

Mr. BENNETT of Michigan. May I ask a question on this foreign program?

Mr. REGAN. Yes.

Mr. BENNETT of Michigan. Are you people spending any money on foreign production?

Dr. MORGAN. Yes, sir, some of this money under the Defense Production Act is being spent on foreign production.

Mr. BENNETT of Michigan. How much has been spent.

Dr. MORGAN. I don't know any that has actually been spent that wouldn't be recovered. Take the rubber program, where by we have set up sufficient money in a revolving fund ($150 million) to permit them to operate for a period of 3 months.

Mr. BENNETT of Michigaan. What about minerals.

Dr. MORGAN. In minerals, we have a revolving fund set up for the purchase of foreign tungsten and its resale. There is about 14 million dollars involved in that. We also have a revolving fund for the purchase of foreign tin totaling 60 million dollars.

Mr. BENNETT of Michigan. Then this report by Mr. Wilson, on April 1, he said that in some cases the United States Government is furnishing a substantial share of the capital needed to develop resources or for funds needed for research in new transportation facilities. That is on foreign projects. Does that money come from you people, or does that come from ECA?

Dr. MORGAN. I imagine Mr. Wilson referred to all sources of United States money.

Mr. BENNETT of Michigan. What?

Dr. MORGAN. All sources of United States money, not just the DPA funds. He must mean the Economic Cooperation Administration, the Export-Import Bank, the International Bank-does he say Government or United States?

Mr. BENNETT of Michigan. He says "United States Government." Dr. MORGAN. Then he must undoubtedly mean all those different authorities.

Mr. BENNETT of Michigan. Do you keep yourself informed as to the amount ECA is spending on copper, fead, and zinc production in foreign countries, as well as some of these other?

Dr. MORGAN. Yes, sir; we get monthly reports from the Economic Cooperation Administration as to development projects they are