Review

Reviewed Work(s): The Control of Oil by John Blair

Review by: Darius W. Gaskins, Jr., John R. Haring, Jr. and William A. Vogely
Source: Land Economics, Vol. 54, No. 4 (Nov., 1978), pp. 531-537
Published by: University of Wisconsin Press
Stable URL: https://www.jstor.org/stable/3146180
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 BOOK REVIEWS

Two Reviews of:

The Control of Oil

By John Blair

New York, NY: Pantheon Books, 1976. $15.00.

John Blair died in 1976 at the age of 62. comment. The Department of State and
He spent thirty-two years of his life in the the Central Intelligence Agency con-
federal service, first as the author of vinced President Truman that the report
monographs for the pre-war investiga- was not in the national interest because it
tion of the concentration of economic would allegedly damage our relations
with
power (the TNEC), followed by nearly a foreign nations. President Truman
decade as Assistant Chief Economist of ordered the Chairman of the FTC to
the Federal Trade Commission and final- recall all copies of the study and to have
ly by fourteen years as Chief Economist the offensive portions of the report ex-
of the Senate Subcommittee on Antitrust punged. Soon after, Blair left the Com-
and Monopoly. In 1970 he retired from mission. Prewitt remained, but was de-
government and joined the economics moted. He eventually rose to the position
faculty of the University of South Flor- of Director of the FTC's Bureau of
ida, where he produced his monumental Economics and had a distinguished pr
work on Economic Concentration and his fessional career.
last book, The Control of Oil, completed The Control of Oil is in many essential
just before his death. The publication of respects an unexpurgated update of the
his last book probably meant a great deal original Blair-Prewitt study. This is both
to him. a strength and a weakness. Like the
At several points in The Control of Oil, original report, the book is a compendi-
Blair cites the Federal Trade Commis- um of information drawn from a wide
variety of scholarly disciplines. Volumi-
sion's Staff Report on the International
Petroleum Cartel published in 1952 by nous knowledge is marshalled in support
the Senate Small Business Committee. of the author's "position" with respect to
The capsule biography at the end of Thehow the world oil market operates and
Control of Oil notes that Blair was thehow it should be changed. One short-
director and coauthor of this classic coming is that Blair's interpretation of
study. His principal coauthor was Roy evidence and events is frequently one-
Prewitt, another career "trustbuster." sided. His mischaracterizations of phe-
What is not noted is that the study wasnomena with which we have some per-
censored by the government before its sonal familiarity tend to make us skepti-
publication. Prior to public dissemina-cal about his judgments in other areas.
tion of the report, it was circulated For illustration, consider Blair's discus-
among various government agencies for sion of the Interior Department's 1974

Land Economics ? 54 ? 4 ? November 1978

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532 Land Economics

royalty bidding experiment (pp. 138- that their inflation had served its
142). According to Blair, "The refusal by purpose. Since the import quota had
several of the largest companies even to been terminated in 1973, the need for
offer bids was taken by the Department excessive estimates had ceased to exist."
as evidence of the procedure's unworka- An equally plausible surmise might be
bility." This is not true. The Interior that by 1973 the Club of Rome's "We're
Department favorably reported marked- Running Out of Everything" mentality
ly increased participation by small oilhad become fashionable, and the radical-
companies on royalty tracts. The draw-ly lower resource estimates fit the new
backs of the system the agency cited were conventional wisdom perfectly.
based on the argument that the large While he never eschews use of neo-
royalties associated with winning bidsclassical economic tools, Blair's main
would increase the potential for prema- objective is to present an institutionalist
ture abandonments and non-develop- perspective on the world oil market. Like
ment of tracts that in absence of royaltiesmany institutionalists (and other kinds of
would be economically viable, thus re- economists), Blair's problems arise when
sulting in a substantial portion of thehe tries to draw policy conclusions from
resource base not being recovered. his reading of events. His logic is not
Another example of questionable in- quite Galbraithian (Small is Good-Big
terpretation occurs when Blair discusses is Bad-Bigger is Better), but the ideas
the various methods for estimating ulti-upon which he ultimately bases his
mate recoverable domestic oil resources chosen policy do not bear the load. He is
(pp. 4-15). He correctly criticizes use of fighting the last war. He really has a
the "Zapp" methodology, noting that better case to present, as we shall attempt
extrapolations based upon the assump- to demonstrate.
tion of no geological selectivity in pre- The story Blair tells is a by now familiar
vious drilling result in an overstatement one, although his recitation of events
of the probable resources to be discov- reflects a lifetime of close observation
ered from future drilling. He then un- and is particularly well done. The story is
questioningly accepts Hubbert's substan-
that oilmen have always conspired to
tially lower estimates based upon the raise prices. They are in this respect like
simple extrapolation of historical trends most other kinds of businessmen. Our
in discovery rates into the future. The domestic varieties have had only limited
amount of exploration undertaken by the success. They have occasionally, with the
private sector and the exploratory strat- helping hand of the State, managed to
egy adopted both depend upon the ex- restrain supply. The irony is that now
pected future selling price of the re- that we face the real thing in the way of
source. Hubbert's methodology does not cartels, those segments of the energy
embody the relationship between explor- industry that argue most vociferously in
atory activity and anticipated future support of "market" solutions to the
prices, and therefore cannot be expected "energy crisis" are just those who in the
to yield an unbiased estimate of the past sought most avidly to avoid the
expected value of the ultimate recover- rigors of market competition by enlisting
able resources. Blair speculates that the support of the State. This does not
"One possible explanation for the rise imply the inefficacy of market solutions,
and fall of the official estimates might be but it perhaps helps explain the current

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Book Reviews 533

administration's antipathy toward anyabides by the cartel price agreement, the

market sorts itself and there is no need
policy that is perceived to enrich oil
companies, regardless of its impact onfor a prorationing system. The swings in
OPEC. market demand over the last few years
Blair is no fan of regulation, and hebeen almost completely reflected in
have
would presumably have been opposed variations
to in production by those OPEC
the kind of massive bureaucratic market countries with low rates of time prefer-
intervention that is embodied in the ence. The notion that by breaking up our
oil companies we will destroy OPEC
administration's "comprehensive na-
tional energy plan." Blair favors what he
seems farfetched. Blair is ultimately a
calls "the competitive approach." His
good structuralist, and frequently ac-
preferred method is divestiture legisla-
knowledges that the real power lies with
tion combined with a substantial govern-
those who actually control the resources
ment energy R&D program. He favors -the OPEC countries.
divestiture legislation not because anti- Blair's second rationale for divestiture
trust has failed, but because in his view it
suffers from the same flaw. Blair presents
has not been tried. He disparages the
a plethora of evidence detailing the var-
FTC's sweeping antitrust complaint ious ways in which oil companies have
against the big oil companies in one sen-
managed to get the State to do what they
tence, characterizing it as broadly could not do for themselves. Big oil has
defined, imprecisely focused and unlike-
great power and it has not been afraid to
ly to reach fruition in time to have any
use it. Destroy big oil and you destroy its
beneficial effect. power. Unfortunately, the evidence
While he never makes the point
would suggest that there is no relation-
ship between an industry's ability to
explicitly, Blair often seems to perceive
that the energy problem is the OPEC
manipulate the State for its own ends
problem, and that the basis for a and the number of firms in the industry.
government energy policy lies in destruc- The dairymen have been very adept at
tion or minimization of the cartel's manipulating the State with impunity.
market power. One may then ask how The it oil industry itself provides a refuta-
is that divestiture legislation will achieve
tion of this argument. There are big oil
this objective. Blair offers two reasons, companies and small oil companies,
neither of which is compelling. First, he companies with large foreign holdings
believes that the big oil companies help and small foreign holdings, integrated
sustain the cartel by serving as market companies and non-integrated compa-
prorationers. He argues that "the OPEC nies. Each group has at one time or
members have neither agreed on stan-another benefited from government
dards of allocation nor set up the
intervention at the expense of the citizen-
necessary allocating machinery," and ry. One could in fact make the counter-
therefore that "the responsibility for theargument-the greater the public per-
curtailments necessarily rests with the ception of "bigness" in an industry,
companies." This is not true. A cartel can
the less likely it is that the industry will
set quantities or prices. OPEC sets consistently benefit from the State's
prices. There are quality differentials and largesse.
there is also some price shaving, but as Thus, while Blair at least implicitly
long as each of the members more or less recognizes the connection between

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534 Land Economics

domestic energy policy and OPEC, both a oil and oil substitutes), we have
principal component of his "Action maintained a lower price. Instead of
reducing demand for OPEC oil, we
Program" cannot be expected to alter the
cartel's behavior. Before discussing his
subsidize it. We encourage consumers to
second policy instrument, it may be use oil in ways that yield benefits that are
worth less than the costs in terms of
useful to spell out explicitly the relation-
ship between domestic energy policy and imports. At the same time, our low prices
the behavior of the OPEC cartel. The discourage additional production of oil
OPEC cartel cannot, of course, repeal
and development of oil substitutes. This
the laws of economics. The price is itsurely not the way to break a cartel.
determines is in its best interests depends Blair recognizes the important role
in part upon demand for its product. government can play in the development
Actions that increase non-OPEC sup-of substitutes for oil. There is, however, a
plies and curtail demand for OPEC
fundamental ambiguity in his position
regarding the structure of government
oil put pressure on the cartel to moderate
its pricing behavior. The basis for gov- involvement in this area. On the one
ernment intervention to bring about
hand, Blair appears to favor creation of a
more energy production and conserva- giant government agency whose task
tion than would otherwise be forthcom- would be research and development of
ing in an unfettered market is that pro-new energy sources, particularly shale
ducers and consumers cannot be ex- oil. On the other hand, he recognizes that
pected to take into account the fact
this kind of approach rarely if ever
succeeds. When it comes to invention
that greater production and conservation
lowers the expected future selling price
and innovation, there is a much greater
of oil. chance of success when there is free play
The fact that there are these external among a large number of alternative
effects does not imply that governmentideas. Massive government efforts tend
should intervene, it merely implies thatto become locked into a limited number
there is a possible rationale for govern-of alternatives and not necessarily those
ment action. Many have characterizedthat ultimately prove most desirable. The
the OPEC cartel as somehow different history of the government's commitment
to breeder technology provides a para-
from other cartels. It would perhaps be
digmatic illustration of this phenome-
more accurate to say that policy toward
the OPEC cartel has differed radically
non. It is interesting to note in this regard
that Blair's favorite alternative energy
from policy toward most cartels. Most
source is shale oil. Among the cogno-
cartels have failed because their high
scenti, the tendency for estimates of
prices have led to development of sub-
shale
stitute products and encouraged con- oil extraction costs to escalate with
sumers to economize on use of cartelized and hover just above the world price of
products, thereby increasing pressure onoil has not gone unnoticed. So it is by no
individual cartel members to cheat. means clear that Blair's is the preferred
Domestic energy policy has been approach, although he himself expresses
extremely perverse in these respects. misgivings in this regard.
Instead of letting oil prices rise to the The Control of Oil is not the definitive
world level, thus encouraging conser- book on oil. There are many flaws and
vation and additional production (of inconsistencies in the analysis. Neverthe-

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Book Reviews 535

less, the book is well worth reading. Blair great pressures on the economy and on
has provided a detailed chronicle of how governments. In the words of the major
the oil companies and the governmentpoliticians, anyone opposing govern-
have acted together to restrain supply. ment policies that are aimed at regulation
One can disagree with him about whatof energy markets is acting on behalf of
should be done now, but one can hardlythe oil companies, who are war profiteers
disagree that something should be done. in the moral equivalent of war, as our
energy situation has been characterized
DARIUS W. GASKINS, JR. by President Carter. Blair's book is one
JOHN R. HARING, JR. of these publications.
Office of Economic Analysis The structure of his book is simple.
Civil Aeronautics Board Blair accepts the thesis that the United
Washington, D.C. States is out of oil and that, for the world
as a whole, petroleum supplies are
sharply limited. This, of course, is the
current orthodox view based upon the
analysis of King Hubbert and reinforced
by the publications of the CIA and
This is an extremely disappointing the National Academy of Sciences.
book. The author, who for many years However, Blair does not discuss the
played a significant role on the staff of the uncertainty surrounding this conclusion.
U.S. Congress, presents in this book the There are competent geologists who
distillation of his long experience with disagree strongly with Hubbert method-
the oil industry. Unfortunately, the book ology and the conclusions reached as a
has no analytical backbone. The author result of it.1
demonstrates no knowledge or under- Blair devotes approximately 230 pages
standing of the serious research done on to an historical summary of the oil
the oil industry by major economists, and industry that is, at best, an episodic
the argument is based almost entirely anecdotal analysis of the development of
upon testimony received by the Con- this industry following the break-up of
gress. A critical failure in this approach is the Rockefeller empire. Blair then turns
that testimony before Congress is never to a discussion of the price increase of
subject to peer review nor is it subject to 1974, in which he argues that it was the
systematic rebuttal. Such testimony gets companies themselves rather than the
reported in voluminous hearings where OPEC cartel which supported the price.
the nuggets of truth are swamped by the His evidence on this regard, to go back to
volume of inaccurate, partial, and self- my original point about lack of scholar-
serving testimony. Moreover, Blair has ship, is, of all things, a quotation from
not even taken full advantage of the testi- Clifton C. Garvin, Jr., chairman of the
mony and ignored views that undermine board of the Exxon Corporation on a
his argument. television program "Face the Nation"
It is extremely fashionable in the
pseudo-academic circles of the high-
volume publishers and in the political 1 See "Introduction" by Robert E. Kalter and Wil-
liam A. Vogely in Government Policy and Energy
arena to portray the oil companies as Supply, eds. Kalter and Vogely, Cornell University
monsters of economic control exerting Press, 1976.

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536
which occurred on November 16, 1975elasticities of supply and demand
(p. 292).
Blair presents a target-pricing hypoth-
esis and the need for regulation as
answers to his perception of the energy
crisis. The thrust of this argument can be
deduced from a short statement by Blair,
"Because of the lack of responsiveness of
both supply and demand, little progress
can be made in resolving the energy crisis
by relying on the 'free play of market
forces.' Instead, the need is for direct and
affirmative measures carefully designed
to achieve highly specific objectives"
(p. 324).
In context of this regulatory non-
market conception of the industry, Blair
makes rather odd statements. On page
396, "The most single effective step
toward increasing the supply of energy
would be the development of oil shale,
using the in situ process, if possible, or
the conventional mining and crushing
process, if necessary." I know of no other
analysis which indicates that shale can
play a major role in solving our energy
problem over the next three decades.
Further, Blair says, "On the demand
side, the single most effective step would
be to lighten the weight of the auto-
mobile, thereby accelerating the replace-
ment of steel with fibreglass and other
light, synthetic materials" (p. 397). This
is interesting when you realize that only
17-18% of our energy demand is in the
form of gasoline and that, even if one
were able to reduce this demand by a
quarter, it would not accomplish the
reduction of more than a single year's
growth in total energy. Finally, Blair
states that the antitrust approach to
break up the big oil industries is the
strategy which has the greatest possibility
of success. This appears to be quite
inconsistent with his position that the
free market cannot work because of the
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Land Economics
involved.
The charge is made that this is a non-
scholarly book based upon inferior
sources. Two examples document this
charge. Professor M. A. Adelman has
been a student of world oil and the oil
industry for many years and he has
published several important works.2 In
the index to the Blair book, Adelman is
referred to seven times. Each one of
those references is to testimony that
Adelman presented in various contexts
before the Congress of the United States.
Never are his serious, scholarly works
cited, discussed, or incorporated into
the analysis. They are ignored by Mr.
Blair (for that matter Blair does not
adequately employ the material in Adel-
man's testimony). Second, Mr. Blair
devotes a chapter to taxation and the
impact of taxation on the minerals indus-
tries. There are in this chapter 39 foot-
notes. Thirty of these 39 references are to
hearings or Congressional record cita-
tions. Five are references of a statistical
or informational nature, such as 6,000
cubic feet of gas is treated the same as a
barrel of oil. Only four of these quota-
tions are to studies of the taxation
problem which were independently pub-
lished. One refers to an article in Atlantic
Monthly entitled "Oil in Politics." A
second is to Philip M. Ster's book, in the
"muckraking" tradition, called the Great
Treasury Raid. The third is to a figure on
profits from Oil Week. A. E. Kahn's
article in the June 1964 American Eco-
nomic Review is the only citation to a
reputable source. Ignored is the work of
Stephen MacDonald and all other pro-
2 The major work, available in ample time for Blair,
is The World Petroleum Market, Johns Hopkins Univer-
sity Press, Baltimore, 1972.
Book Reviews 537

fessional analyses of the taxation prob- the overall state of the energy economy.
lem. Blair has largely reiterated a position he
A survey of the index indicates that the developed many years ago and ignored
above example could be multiplied radical changes in both the energy
many-fold. None of the works of senior, market and impartial research available
responsible researchers under the Re- on the subject. In short, an extreme
sources for the Future banner are men- disappointment and a poor memorial to
tioned. the author.
Regretfully, this book must be regard-
ed as an emotional, nondocumented, WILTJAM A. VOGELY
nonscholarly attempt to lay the blame. It Professor of Mineral Economics
is further flawed by misconceptions as to Pennsylvania State University

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