MONEY: Silver to Treasury

One morning last week Professor James Harvey Rogers of Yale reached Singapore in the course of a world junket. Four months ago President Roosevelt sent this snaggle-toothed Brain Truster out to gather all possible facts about silver in the Orient. Professor Rogers had talked long and solemnly with Chinese bankers in Shanghai, Canton, Hongkong, had toured the Yangtze Valley, had written meaty reports back to the U. S. Treasury.

From Singapore he was to go on to India to wind up an investigation on which the whole silver policy of the U. S. was supposedly to be based.

The same morning, half a world away, Washington newshawks were bustling into Secretary Morgenthau’s Treasury office.

Though Professor Rogers’ job was not finished, Mr. Morgenthau was already primed to fix U. S. silver policy for a long time to come. He ordered the doors closed, forbade anyone to leave until he had finished talking. Then he announced that the Government was “nationalizing” all silver bullion in the U. S., would pay silver owners 50.01¢ an oz. While his hearers fretted at their forced detention, Mr. Morgenthau proceeded to explain.

President Roosevelt had issued a proclamation under the Silver Purchase Act passed last June. Nobody would have to give up his table silver, silver ornaments, silver coins or silver tooth fillings. But owners of bullion—that is, those who had bought this commodity as a speculation—must turn in their silver at the nearest mint within 90 days. If they failed to do so, they could be punished by a fine of $2.58 for every ounce in their possession. Excepted from this order: manufacturers of silver and other commercial users. Silver miners will still get their special price of 64¢ an oz. from the mints. Since the price of silver in Manhattan had climbed to approximately 50¢—for the first time since 1920—and since the Silver Purchase Act forbids the Treasury’s paying more than 50¢ an oz. for domestic silver bought in the open market, the time had come when the Treasury had to nationalize U. S. silver or leave it in private hands.

“Is this inflation?” gasped a baffled newshawk.

“I would like to see a book written on What Is Inflation?” retorted Secretary Morgenthau. “If you are in a hurry you can go now.”

The newshawks scurried for the door. Telegraph keys began to click out news that jostled President Roosevelt’s Green Bay speech for No. 1 Press position. Trading in silver futures was promptly suspended on Manhattan’s Commodities Exchange. With the Government as prospective owner of all silver at a fixed price, silver brokers were out of a job. The news flashed to Wall Street, and speculators, thinking of inflation, began to sell U. S. bonds until the Government hastily came to their rescue with bids higher than the prices at which they were for sale. The news flashed to London and traders sold dollars on the hunch that the U. S. dollar was once more on the road to perdition. It flashed to Shanghai and hundreds of Chinese who had sold silver short spent a frantic night in fear of ruin. It flashed to Nevada and hopeful miners began to talk of silver at $1.29 an oz., of opening new mines and such famed old ones as Virginia City and Leadville.

When the same news flashed down the length of Pennsylvania Avenue and into the Senate Office Building, it moved Oklahoma’s two Senators to speech.

Said Senator Elmer Thomas, who thought his beating of the silver drum last fortnight was largely responsible for this latest twitch of U. S. silver policy: “This move breaks the strangle hold of the world gold bloc and marks the way for a new money system throughout the world. The United States has set the pace. . . . Others will follow our action—or seriously consider doing so. At once they will retain all their silver and go in the market for more. . . .”

Said Senator Thomas Gore, who believes the best way to start real inflation is to repeal all laws against counterfeiting: “I have more faith in turnip patches. They provide feed for animals and food for people.”

Significance. Like the baffled newshawk in Mr. Morgenthau’s office, businessmen demanded: “Is this inflation?” Economists promptly gave them an answer: “It is not inflation but it is inflationary.” Nobody knew exactly how much silver bullion was in the U. S. last week, but it was estimated at around 200,000,000 oz. When the Government takes this over it will tend to boost the world price for silver just as the price of wheat would tend to rise if the Government locked up 200,000,000 bu. Moreover the citizens who last week owned 200,000,000 oz. of silver will, after they have given it up, receive $100,000,000 in cash to spend or invest. This will have an inflationary effect like all the other hundreds of millions that the Government is paying shipyards to build battleships, farmers toreduce crops, laborers to erect public works, jobless to stay alive. So the nationalization of silver is inflationary but only a thimbleful in a big bucket of inflationary Government expenditures.

One major difference between silver purchases and other Government outlays is that the Government has to borrow or collect taxes to pay for other expenditures. ]It pays for the silver without drawing on the Treasury, simply by printing silver certificates. Under the Silver Purchase Act the Treasury must issue silver certificates to pay for the actual cost of silver it acquires, but it may issue silver certificates for the full “monetary value” of all silver purchased. Example: If the Treasury buys 100 oz. of silver at 50¢ an oz. it must issue $50 worth of silver certificates, but since 100 oz. of silver is the legal content of 129 silver dollars the Treasury may print $129 of silver certificates, taking a “profit” over cost price.

Last week, when inflation fears put skids under Government bond prices and dollar exchange, the Treasury hastened to make clear that, for the present, it would issue certificates only for the cost of the silver purchased. But the $100,000,000 of certificates issued will have the backing of only 77,500,000 oz. of silver (the fixed legal quantity), leaving the Treasury 122,500,000 oz. of silver as pure velvet. Later, if it wants to, the Treasury can issue against this remaining silver $158,000,000 of legal silver certificates—which will not technically be greenbacks but might as well be. In any event U. S. citizens will have to accept silver certificates which for every $1 of face value will have an actual backing of about 39¢ worth of silver at current market prices.

Thus from the Treasury’s standpoint its silver transactions provide nice “profits,” although the silver itself will merely clutter up the Treasury vaults. And the nationalization of silver may serve the Treasury in another way. It tends to make people inflation-conscious, without actually resorting to inflation—a device which the Administration has found useful before to give drooping business a temporary stimulant.