Uncle Sam, the Silver King

BACK in 1933 we used to hear a good deal about President Roosevelt’s prestidigitatorial performances. One of these had to do with our silver policy — verily a policy which, as events have demonstrated, now bears a singular kinship with Alice’s experiences in Through the Looking-Glass. Alice, you will remember, discovered that ‘ it takes all the running you can do, to keep in the same place.’

The silver policy is still in a more or less similar situation. On July 9, 1937, Secretary Morgenthau announced an agreement with China to swap America’s surplus gold for China’s surplus silver. To what purpose? From America’s standpoint, to relieve one excess at the price of adding to another. I read the announcement in a newspaper which on another page gave an account of the expensive hole in the ground which is being dug at West Point to accommodate America’s massive hoard of silver. The hole is to be as imposing as the one in Kentucky for gold. It will hold no less than two billion ounces, or about double the Treasury’s present holdings.

From the standpoint of silver, the agreement is worse than footless. It implies that China has abandoned silver as its monetary standard for good and all. China — the quondam prop for the white metal! Since the days of Cortez the bulk of the silver output of the world has been produced on the American continent and sold to the Orient. It was used as money. But long ago India dispensed with silver as its standard money. And in 1927 she started to sell some of her hoard, an action which drew upon the head of the British Raj many bitter denunciations from American silver producers. This left China with the main responsibility for the metal. But the burden proved too great, and in November 1935 China herself deserted the silver standard, and adopted a managed currency system.

Friends of silver had been hoping against hope that China’s defection might prove temporary. The new agreement blasts those hopes. But events before that had foreshadowed some such agreement. The last report of the Bank of China tells a story of successful currency management. Chinese currency has remained stable, instead of fluctuating as before with the price of silver; paper money is acceptable in even the remote corners of the Republic; and, consequently, China is now in India’s old position of having surplus silver.

This is where Uncle Sam comes in. Now the chief buyer of the metal, he has been left with the dubious rôle of the main prop of the market, one which can be abandoned only to silver’s hurt. Uncle Sam, as the saying goes, is left holding the baby.

And this sorry situation is the result of a silver policy which, in the advance notice of intentions contained in the Democratic platform of 1932, was destined to ‘rehabilitate’ silver!

The plank was inserted at the insistence of the silver interests in the West. Among all commodities, silver had fallen first and steepest. Why should that, however, excite the concern of a Democratic convention? Silver, it is true, is produced in the United States, but its value is less than that of the output of cigar boxes or Eskimo Pies. The reason for Democratic concern was simple. Silver holds a unique position among American sectional interests. It is spread thin over many states, but principally over Idaho, Utah, Montana, Nevada, Colorado, and Arizona, which are poor enough to rate their silver highly. A sectional interest acquires importance politically by the fact that geography is equally the basis of legislative representation with population. Thus we had this situation: silver was the object of the vigilant guardianship of the twelve Senators from the six principal mining states; and, though those states have a total population of only one twentieth of the American population, they nevertheless could command one eighth of the American Senate. Rehabilitating silver in 1932 thus had a connotation far more political than economic.

Rehabilitation of any commodity has, of course, reference to its price. And the prudent way of improving a price is to enlarge the demand for the affected commodity. The Democratic platform in 1932 clung logically to international action in alleviating the silver problem. Accordingly the United States brought up the subject at the world monetary and economic conference held in London in midsummer 1933. The aid obtainable from that parley, however, was meagre. Apparently the rest of the world did not share America’s concern for silver. Indeed, at the preparatory meeting of experts, the American member had to endure a lot of good-humored banter for his insistence upon a place on the agenda for the white metal. The silverites then concentrated upon domestic action.

The first step of importance was taken on December 21, 1932. The silver interests succeeded in persuading the President to authorize the purchase of the domestic output for four years. The price was to be 64½ cents an ounce, a price which was lifted on April 24, 1935 to 77½ cents. At the time of the original authorizat ion, the market price was 43½ cents, so that the silver miners got a 50 per cent boost. A neat little bounty!

Just before he died in February, Representative James Buchanan, chairman of the House Appropriation Committee, asked this question: ‘Why do we pay 78 cents an ounce to our silver miners when the market price is only 45 cents?’ The question went unanswered. The silverites anticipated inconvenient questions of this nature when they forced a new silver-purchase bill on the statute books on June 17, 1934. This act authorized the Treasury to buy silver abroad as well as at home. The object was to force up the price of silver so that the subsidized price at home would not look like a subsidy.

These efforts ‘to do something for silver,’ however, have proved a boomerang. Or should one say a shooting star? Under the new purchase act the Treasury had almost unlimited authority to buy silver till the price had been pushed to $1.29 an ounce. Naturally the metal came out of hoards as well as mines to satisfy a buyer so voracious and wellheeled, Naturally, too, the price started to climb. Speculators began to compete with the Treasury, but their buying was not for keeps — merely for the sake of the profit accruing from buying cheap and reselling to the Treasury in a market which in such unique circumstances was bound to be a rising market. So the price soared till it reached 81 cents on April 26, 1935. On that day Uncle Sam began to tire of his benefactions to silver as well as gold interests abroad — benefactions which, in the words of the Midland Bank (London) Review, had already made ‘an economic paradise of the Rand.’ Uncle Sam, specifically, suddenly withdrew his buying orders to all comers, and the price slumped heavily.

Uncle Sam in this reference is the Treasury. But the Treasury had reckoned without the silver Senators. They descended en bloc upon Mr. Morgenthau, and he had to resume his wholesale buying. It made no difference to the Senators that on one day alone the Treasury had absorbed foreign offerings equal to the total American production for one year. The Secretary of the Treasury had to carry out the purchase policy ‘enthusiastically,’ as he had promised to do — that is to say, by taking all offers, so that the price could be kept soaring on to $1.29.

By this time, however, silver had been dealt a mortal blow. The speculators, burnt once, kept out of the market; and, greatest blow of all, China, alarmed by the manner in which the commodity (that is, her currency) had been climbing, decided to desert the white metal. Amid the general disillusionment, Secretary Morgenthau in December 1935 again ‘braked’ his buying, this time without protest. Since then he has been buying selectively, mainly by special arrangements such as the one which has been reached with China.

The price has gone down as rapidly as it went up. By February 1936 it had sunk to 45 cents, or about the same price as it was when the silver purchasing was first started. It has stayed in that vicinity ever since. One can well imagine the chagrin with which the silverites have seen silver refuse to join the upward march of other commodites with recovery. It was necessary to hide their chagrin, as the French say, with a traitor. Accordingly silver Senators, in acquiescing in the Treasury’s selective buying, explained the change in policy as due to the pointlessness of aiding British scheming. ‘It seems evident,’ said Senator Pittman of Nevada, ‘that Great Britain is desirous of forcing China and other countries into the pound-sterling group, so she can control the exchanges of those countries, and, through the control of exchanges, control imports and exports, as she is doing in Argentina.’ To continue the wholesale purchase of silver, it was said, would be tantamount to putting the Chinese in more funds for managing their non-silver currency. It is ironical to recall that this explanation was made when the Treasury was negotiating with China for the direct purchase of fifty million ounces. For the July 9 agreement is the second of the kind. The first was made in May 1936.

Of course the domestic miners still get their 77½ cents, but the agreement comes to an end this year, and then there are bound to be more Buchanans to ask ‘Why?’ to any request for renewal. Suppose the American price is no longer sustained. Then the silver miners, looking around at the natural rise in other commodities, may themselves ask, ‘ What price rehabilitation?’ Silver is still ‘in the same place’; indeed, the defection of China as the outcome of rehabilitation is witness to retardation.