year is not the time to press the issue which I am sure we all understand but do not sanction. The unions are bringing about a problem that is just beginning to show through all the scuffle of goon squads, idiotic wage demands, and other strong-arm endeavors.

Labor leaders, with their tenacious demands, have brought about such a high wage scale for their members that the problems of the white-collar workers have reached an all-time high. There are today many young men who are being forced into the ranks of labor rather than junior management, because of the take-home pay. There was just recently a young man who came to our firm seeking a job where he could learn a trade. The fellow was about 26 years old, married, had a college education; and this young man had been forced into the ranks of labor because the job he held had been so low paying that he could not afford to stay with it any longer. This previous job had been in a bank. The boy had intended to make the banking profession his career, but was forced to turn to labor to earn a substantial living. I think that you will find that this is a problem facing all business organizations today, with the exception of the very large ones who can afford to risk a long-term investment in training young men. If this present situation continues, management will dwindle to a small group of very able men who will at some time desire to shift the burden of management to a younger group, someone who has trained under them, and upon whom they can completely rely.

The last N. A. M. News contained two articles which have been discussed frequently for some time, and they refer to the revenue law allowing depreciation deduction; and the high taxes which bring about the intermediate ideas of savings, risk capital, and other prerequisites of economic security.

With today's present rates of depreciation, it is impossible to replace any type of equipment from a small delivery truck to one of United States Steel's mammoth blast furnaces.

Most businessmen are being forced to continue with antiquated and worn equipment because of this prohibitory situation. The only alternative to replacement and expansion lies in new stock issues or one of our present-day loans which are bringing substantial interest, and these appear to be on the upswing with the balance of our inflationary measure. Today, with all the talk of possible recession and the signs being seen in some industries which produce mostly luxury items, it is difficult for the small-business man to go deeply into debt on new machinery or plant modification with the thought hanging over him that the present situation may ease off considerably and his situation would be that of overextension. The congressional tax experts are working on this problem now, but let us work and see if this issue cannot be brought forth for the benefit of all businessmen, large and small.

Our former President, Herbert Hoover, who was recently appointed Chairman of the Commission on Organization of the Executive Branch of the Government, made a statement a few days ago stating that the present high tax burden is so great that it threatens the whole economic and social advance of the Nation. He said that, unless Federal spending is sharply curtailed to make possible a reduction in taxes and provide new venture capital, the Government will become the only source of industrial capital.

As we all know, many new stock issues have at the last minute been discarded, due to inactivity of the market, and to the total lack of public interest. The Government is losing thousands of dollars in their inactivity, and industry is foregoing the money needed for expansion. If something is not done in the very near future, our risk capital will disappear from present-day business.

As you know, there can be no expansion, improvement of other modifications of this type, without additional capital. The large investors, in the long run, will be taking a loss through higher-bracket taxation upon receiving dividend action. The smaller man, who desires security and returns, faces either the risk of a loss on his investment or further taxation on dividend returns. According to the present set-up, there is no need for anyone to risk their money-how little or how much they have in stocks today.

Your newspapers today are filled with wild-eyed headlines of alltime high earnings brought about by large corporations. In most instances of the small-business man, these earnings are gross earnings and do not represent anything other than figures for the tax experts and labor unions to gloat over. As you know today, the major portion of your business costs represent labor and material which have advanced more rapidly than prices. The dollar will not go as far as it did in 1939; so, therefore, I deem it fitting that these earnings be termed "phantom earnings"; and, unless the taxes and labor are brought into the median where the small-business man can successfully cope with them, many will be eventually overcome or taken over by big business. Do not get the idea that I am here to talk down labor, unions, or taxation, because each has a necessary place in the American way of business of today; but all of us should be on a plane where we can work together.

Then comes the situation of the small-business man trying to cope with our bureaucratic set-up in Washington today. Some businessmen, trying to obtain lucrative Government contracts, have become so ensnarled in bureaucratic red tape that, by the time the contract is completed, if all the costs and values were summed up, the smallbusiness man would be lucky to break even. As you know today, the Court of Claims, with its amount of cases on hand, is at an all-time high. This is due to Government red tape, bureaucracy, and other powerful Washington interests who have had the idea that nothing is so strong as a bureaucratic democracy, which up to this time has been true. There have been many defaults and breach of contracts in all fields of business: some from Government standpoint, others from business standpoint.

I will cite one case that occurred in our own organization. A wellknown Government agency approached us on renting an entire floor of one of our buildings. At that point, the price and date were set; but 6 months later the agency advised that they had decided against the idea. At that point, the question of 6 months' rental fee was brought up: and they suggested that it would come later. We have been working on this problem through our attorneys for the last year; and, so far, have received nothing in the way of action other than attorneys' bills. At present, the idea usually received from Court of Claim actions is that the case was fought in the end for a matter of principle rather than financial returns by the businessmen.

Gentlemen, I realize that I have often strayed from the discourse of monopolistic action, and I am sorry; but I think I brought up problems close to that study. I want to thank you for your time and considerate attention and say that I believe that, if this association and its constituents work together as they have, we will be able to continue in the prosperous way of life we have known.

(Witness excused.)

STATEMENT OF GLENN C. SPANGLER ON BEHALF OF SPANGLER BROS., HOUSTON, TEX.

Mr. FORISTEL. State your name.

Mr. SPANGLER. Glenn C. Spangler.

Mr. FORISTEL. What is your business?

Mr. SPANGLER. I am connected with Spangler Bros., welders and designers.

Mr. FORISTEL. In Houston?

Mr. SPANGLER. In Houston.

Mr. FORISTEL. State your problem.

Mr. SPANGLER. Well, my main problem here is in steel. You have probably taken it up before. All of these big fabricators get more allotments. Anyone who started in business since the war, or who were not large enough before the war to get an allotment, cannot get it now.

That is not what hurts us so bad, but the fact that everything that goes to the warehouse should be sold to the little man as well as to the big man.

However, the big man is getting 90 percent of it; and the rest is distributed to the small fabricators.

Mr. FORISTEL. Some of your warehouses have big fabricators? Mr. SPANGLER. Yes; some of them have big fabricators. We do not mind that competition, either; but we want to get the steel to work with. Competition, I do not mind a bit.

What it amounts to is that in my business we have different sections of steel. Maybe one section will support as much as another section that weighs 10 times more. All of your big fabricators get those sections that come into the warehouse. I get what is left.

On heavy sections, I pay more; therefore, I make less profit; and, with the men I have working for me, it means more overhead. That is the main part on that.

I have not prepared a statement. I heard about this meeting, or read about it yesterday in the paper, and I decided I would come up and see what it was all about.

There are some other things on monopoly, cutting prices, and everything that I had in mind. For instance, some people call me an inventor. I have an article I would like to put on the market. I could go to Sears-Roebuck, and they would sell it right now. They will buy it for $9 and sell it for $8. Two years from now, I will not have nothing to go back on, because it will be all ruined.

That is why, right now, I am still poor, because I will not take it to someone like that; and, as Mr. Archer said, you cannot get capital to expand with. I am right up against the same thing. I cannot get capital to start manufacturing and start an organization for articles I want to manufacture.

That is a little bit different from what I intended to talk about, but, it came up and brought it to my mind. I think that is all I have to

say.

Mr. STEVENSON. We thank you.

(Witness excused.)

Mr. STEVENSON. This concludes the hearing of the Select Committee on Small Business of the House of Representatives at Houston, Tex. We want to thank all of you for your kind interest and your fine attendance, and we trust that we have learned something that will eventually result in the legislation that will help at the local level.

(Whereupon, at 3:45 p. m., hearing in the above-entitled matter at Houston, Tex., was closed.)

(The following papers were received subsequent to close of hearing and are hereby made a part of the record.)

DALLAS, TEX., October 12, 1948.

Before me, the undersigned authority, on this day personally appeared D. Harold Byrd, president of the Independent Petroleum Association of Texas, president of Byrd-Frost, Inc., and president of the Plains Production Co., independent oil and gas producers, who, after being duly sworn by me, deposes and says that the facts and conclusions herein are true and correct to his best knowledge and belief, to wit:

The security of the United States against attack by an aggressor is being threatened and impaired by a lack of oil within our borders to wage a modern war. During World War II, 60 percent of the tonnage of supplies shipped to our own forces and those of our allies was oil in some form.

The daily production of crude oil in the United States at the present time is 5,367,500 barrels. That this is not enough to meet our current, peacetime demands is indicated by the Bureau of Mines estimate of demands for October: 5,620,000 barrels daily.

There are two major reasons why the petroleum industry in this country is not producing enough oil to meet our own normal peacetime demands, let alone the tremendous extra amount we'd need to whip an aggressor.

These reasons are (1) a shortage of steel for drilling and other operations, and (2) a price for crude oil sufficient to provide the capital and reserves needed to finance the hazardous and expensive exploration for new oil structures.

In an address by John R. Suman, vice president of the Standard Oil Co., of New Jersey, before the petroleum division of the American Institute of Mining and Metallurgical Engineers meeting in Dallas, October 5, Suman urged the development of crude-oil reserves in the Middle East to meet the needs of the European recovery program.

Mr. Suman omitted part of the truth. Standard Oil and its associated companies hold large oil concessions in the Middle East within easy grabbing distance of Russia. All of us want the ERP to succeed. We want to help our European friends get back on their feet. We want to help them become a bulwark against Russia.

The ERP is projected over a period of 5 years. During this same 5-year period, Standard Oil apparently is trying to get as much oil as possible out of its holdings in the Middle East.

The next 5 years seem to be most critical in our relations with Russia. All of our peace overtures to Russia have brought us nothing. Russia, mistaking our peace overtures for appeasement, is getting bolder by the hour. Whether we have war with Russia depends, I honestly believe, on when we stop letting Russia push us around.

During the next 5 years, we should make a supreme effort to develop our oil reserves in America. The best way to halt the Red aggressor is to make ourselves so strong that he would know in advance that he couldn't possibly win in a war against us.

The American petroleum industry cut its exploratory-drilling program to the bone during the war, so that steel could go into war implements. Since the end of the war, steel has continued to be critically short. Because we haven't had the steel we needed ever since World War II broke out, we have not been able to carry on our normal drilling program. Thus, we are hardly able to meet present peacetime demands.

That part of the petroleum industry which takes most of the risks, does most of the wildcat drilling for oil-the independent producers still suffer from a lack of steel. Our drilling program lags far behind the point where it would be if we had had all the steel we needed during the past 7 years and if we could get all we need now.

Mr. Suman and other spokesmen for the big oil companies with holdings in the Middle East use our deep concern for ERP as a backdrop for the personal interest of those companies.

What Mr. Suman failed to say in his Dallas speech is that there isn't enough steel available to develop Middle Eastern oil reserves and develop those here in America at the same time.

At this very moment, we should be straining ourselves to develop every oil prospect in America. We should be in the midst of a greatly expanded program; but we aren't. At the present time, there are 820 idle drilling rigs in the country-405 temporarily idle and 415 stored away. Idle rigs mean a lag in drilling. Lack of steel is not the only reason why these rigs are idle. Venture capital will not take the risks involved in wildcap drilling at present prices for crude in the face of very high costs.

It costs an average of $11 a foot to drill a well today, against $7 a foot in 1942. Labor costs are up 70 percent; maintenance, 70 percent, and materials 46 percent. Within the framework of our American system of free enterprise-thank God for it-capital flows into an enterprise where it sees a chance to make a reasonable profit. Our best guaranty of plenty of oil in event of war with Russia is to develop our home reserves. We can't do that without plenty of steel and without a price for crude that will induce more capital to take the risk.

If the Middle Eastern oil reserves were developed to the extent Mr. Suman seems to advocate, then they would be a sitting duck for the Russians. One of Russia's satellites, Rumania, recently grabbed American-owned oil properties in Rumania.

Stalin knows that the oil in Rumania and inside Russia is not enough to wage a modern war. If Mr. Suman's company and its associates can develop ample oil reserves just outside the "iron curtain," on Russia's doorstep, does Mr. Suman think Russia won't grab it whenever Stalin gets ready to take over?

It may be good business from Standard Oil's viewpoint to get all the oil out of its Middle Eastern concessions it possibly can before Russia grabs, but it isn't good for American security to take our steel to develop a weapon against us. I put America first. If the big companies take the steel we need and deprive us of the price we need to put our own petroleum in a strong, healthy condition, what will happen to us.

If freedom is not to perish from the earth, we must never again be caught with too little, too late.

D. HAROLD BYRD.

Subscribed to and sworn to before me a notary public in and for Dallas County, [SEAL] JEAN J. BUDLOW.

Tex.

Austin, Tex., October 12, 1948.

Col. D. H. BYRD,

President, Independent Petroleum Association of Texas,

Dallas, Tex.

Answering your request, I quote oil-royalty provision contained in typical University of Texas oil-and-gas lease:

"Lessee agrees to pay or cause to be paid during the terms hereof: as a royalty on oil, the sum of one-eighth of the value of the gross production based on the highest posted price, plus premium, if any, offered or paid for oil of like gravity in the general area or, as the lessor may elect, one-eighth of the gross production, the same to be delivered at a central gathering point on each lease or to the credit of the lessors into pipe lines which wells may be connected."

C. D. SIMMONS,

Vice President and Comptroller, University of Texas.