THE SILVER PLAN

Evening Post, Volume CXVIII, Issue 78, 29 September 1934, Page 9

THE SILVER PLAN

A NEW AMERICAN MOVE

WHAT NATIONALISATION MEANS

FORCED BY MAEKET

In itself, the Government's decree nationalising silver bullion can have little effect upon the average citizen. The order, of course, does not upply to household silver, silver-fillings in teeth, silver coins, silver watches, or silver made up into ornaments or commercial articles. It applies only to those- stores of silver in bulk, tthich may amount to some 150,000,000 ounces, says the "Literary Digest." All such silver tnust bo turned in to the Government within ninety days of the Executive Order.' For this silver the Government -will pay a net price amounting to 50.01 cents an ounce. The Government will continue to buy newly-mined silver at the 64*-cent rate, as before. The nationalisation order stirred the markets of the world. American stocks went up, though the market sagged later and Government securities weakened. Silver prices mounted in Shanghai, Kong Kong, Bombay, and London. Silver stocks advanced on the exchanges in San Francisco and Salt Lake City. Members of the Silver Bloc hailed the order as the beginning of a new epoch, while conservative Republicans made fun of it as a new rabbit out of the Presidential hat. To thoughtful obsorvers the nationalisation decree seemed significant as a sign that Iho Government may bo contemplating ii policy of currency inflation. Abroad, heavy selling of the dollar was partly duo to a belief that the gold value of the dollar was soon to be decreased sixain. On tho other hand, it. lias been suggested that this may mean that the Government's future currency-tinkering may be confined to silver. WHY WAS IT BONE? Why was this step taken at this particular time? For one thing, it appeared as a dramatic gesture signalising the President's return to Washington, after his long vacation. It was also timed to give a fillip to speculative activity-after weeks of extreme market dullness. Furthermore, tho Monday after the announcement, Senator Elmer Thomas, of Oklahoma., leading Silverite, made a speech during Farm Week at the,"World 'a Fair" in Chicago. Advance copies of this speech had been sent broadcast throughout the country. Mr. Eoosovelt and his advisers must have known that tho Senator would call for further inflation. The Senator declared that tho farmers of tho country want gold raised in value from 35 dollars an ounce to the maximum—'ll.34 dollars—possible under the existing law. At any rate, tho President has met Senator Thomas's call for a dilution of tho present excessive value of gold by "a much wider use of silver as part of the metallic' base." It will be remembered that the existing law calls for the eventual backing of United States currency Ly both gold and silver, in the proportion of 75 per cent, gold and 25 per cent, silver. Since the existing gold backing of United States currency is nearly 8,000,000,000 dollars, this would call for tho acquisition of more than 3,000,000,000 dollars' worth of silver. Whether it would be possible to extract such a sum from the fitivcr hoards of the Orient, it is hard to say. But even the email step now taken will,help the farmers pay off their debts, according to Senator Thomas. "Silver is now primary money," he declared, and the acquisition of the country's supply of silver bullion "has the same effect on money as it! wo hsvd discovered a now mountain of gold." The .Senator considers it "the biggest thing that has been done thus fur in our monetary programme." But to such an export as Alexis Tatischef, statistician of the New York Commodity Exchange, it seems evident from this rather limited action that "tho President docs not wish a definite silver programme." COMPELLED. From a market standpoint tho nationalisation proclamation was compelled by the recent rise in silver quotations which.havo been forcing the price up to within a very small fraction of the 50 cents an ounce the Treasury may legally pay in the open market. A markot price above the Treasury price would, of course, nullify the Government's silver-buying programme. So recourse was had to the provision of tho law allowing tho Government to take over all silver stocks at a- fair value in consideration of the prevailing market price. Tho day after the nationalisation order was issued the Treasury announced that it was now issuing silver certificates against its 62,000,000 ounces of free silver (silver not held for redemption purposes), and added: "These silver certificates are .being issued on a basis of 1.23 dollars an ounce, because that is required by law for all silver certificates." The silver being nationalised, it went on, will also form tho basis of the issuance of silver certificates on the basis of 1.20 dollars an ounce, though "for tho present _ the Treasury will issue against this silver an aggrogate face amount of certificates equal to its cost." This decision, said tho "New York Times," "means that the Government will be issuing paper money only in part .secured by real value. . . . The Government will issue 1.29 dollars of paper currency for silver for which it has paid in some instances 64| cents, in nome instances 50 cents, and in some instances much less than 50 cents. Even on the basis of the present inflated market value of 50 cents an ounce for silver, therefore, 79 cents out of every 1.29 dollars of new silver currency will be backed by nothing. NOT FULLY BACKED. "Put in another way, out.of evory dollar of new silver certificates only 39 cents, when the plan is in full effect, will.represent real value." The direct effects of the higher price for silver will be felt chiefly in the Eocky Mountain States, where practically all our silver is produced. Senator Key Pittman, of Nevada, onco a great Silver State, bolieves that tho price will eventually bo pushed up to the 1.29 dollar limit of tho existent law. But, according to Handy and Ilarman, leading silver specialists, "There is no effect whatever on silver-mining or manufacturing. Tho Government has done more than its share to aid the silver miner. Since the miner's price has been established for somo time there is no effect on his income. Tho 50.01 cents per ounce affects all private supplies, and here the speculator reaps a profit if he has held on to his supply." Speculators who have been making money in silver must now turn to other commodities or to stocks, as the nationalisation decree put an end to trading in silver futures. The Commodity Exchange in New York promptly suspended all trading until further notice and announced a nominal closing price of 49.96 cents per ounce for all deliveries. Incidentally, the 50 per cent tax on silver profits does not apply on silver turned in uuder the proclamation. "MEANS NOTHING." To such an observer as Bernard Kilgore of the "Wall Street Journal" the nationalisation order has practically no significance at all, except as a natural unfolding of the Silver Purchase Act of 1934. In other words: — "The real meaning of tho Silver Purchase Act of 1934 probably will, not begin to become evident until the Government (1) begins the purchase of

metal abroad, either with gold or with foreign exchange,' and/or (2) begins to spend its 'profit' on silver already acquired—i.e., begins to issue silver certificates against tho difference between fifty cents (or less) per ounce and 1.29 dollars per ounce. "Either quo of these developments, or both, would be of greater monetary significance tli.-ui anything that lias happened to silver thus far." Eastern Press comment generally minimised the importance- of tho silver decree as contrasted with the exultant statements from Western Senators. "There was no ren.l need for taking this last step,' ' said the '' New York Times,'' "any more than there was for any of the previous purchases of silver under tho new monetary legislation; no onu has benefited except silver producers and silver speculators." And the conclusion was: "In 1931 the annual silver production in the United States was equal in value to 1 per cent, of our.national wheat crop and one:half of our peanut crop."

The Bepublican "Now York Herald Tribune" dubbed tho silver movo simply a now "whito rabbit of which ono has been pulled out of tho Presidential silk-hat evory time it has soemed that business or the markets neoded a stimulant." At any rate, observed tho "Baltimore Sun," It added a grandiose touch to a prosaic policy of currency juggling that if carried on gradually as tho Administration has been carrying on might not achieve its maximum effect."