Foreign Affairs

Southland Times, Issue 25313, 17 June 1935, Page 9

Foreign Affairs

THE SILVER SCHEME ROOSEVELT’S BIG DIFFICULTY (By “Criticus.”) President Roosevelt is still engaged in his race with the world speculators in connection with the price of silver, but while the boosting of the prtce has caused great joy in silver producing countries, the critics of the White House continue to wear long faces. The situation is not without its depressing features. In October, 1933, when farm prices had relapsed after a jump inspired by the New Deal, Mr Roosevelt decided to follow the course mapped by Professor George F. Warren and boost the price of gold, but on January 31 of this year the President suddenly withdrew his espousal of that scheme, and tied the dollar to the international gold standard at a new rate. But he is still pushing on with the Warren policy for silver. It has been a long time in the making. A year ago last December, Mr Roosevelt undertook to buy for four years all the silver produced from American mines. The price he set was 50 per cent, above the ruling market rate. Bonfires throughout Utah, Nevada, Montana, Idaho, Colorado, Arizona, and New Mexico, testified to its popularity. But the miners’ windfall merely whetted their appetities. After the veterans’ bloc, who dance to the tune of exsoldiers seated watchfully in Congressional galleries, the silver bloc is the most powerful in Congress. For months it continued to struggle with an unwilling White House for bigger and better silver legislation. After six months it got it. The new policy was an act of Congress extending silver buying operations to foreign countries. It became the declared policy of the United States to hold one-fourth of its metallic reserves in silver. At his discretion the President was instructed to filful this policy—a power which gave the White House the bid on five times the yearly output of the entire world. A wit has said that the measure put Mr Roosevelt in a position to underwrite a perpetual bull market in silver. At first the speculators did not take the discretionary authority seriously. Mr Roosevelt, however, did. Gradually the Treasury, has been buying silver in competition with the speculators on five continents whose purchases have been made with the view of unloading them upon the United States at even higher prices. Three weeks ago the world price crossed the price fixed for the domestic silver producers. Naturally the President had to advance that price in order that the domestic miner should not be paid at less than the soaring world price. . A threefold rise in the price of a commodity is bound, if it continues, to affect the quantity of the commodity produced. To estimate the effect, quantitatively, of the present rise in silver prices upon silver output is, however, quite impossible. There are vast quantities of silver in the shape of plate, etc., which could be melted down; even more iinportant, however, is the circumstance that silver is largely a byproduct of other forms of mining, and the effect of a sharp rise in the price of silver is therefore not uniformly spread over the whole output of silver. Where the main ingredient of a mixed ore is silver, the tendency will, of course, be to increase the output; even where silver plays a minor role in determining the profitability of mining, a rise in its value will, of course, alter its place in the relative value of importance which it occupies. Roughly half the world’s silver represents the product of ores in which silver itself is the principal revenue producing metal; another quarter of world production of silver is associated with lead-mining; the remaining quarter is represented by the association of silver with copper, tin, zinc, and gold production. Of all the countries concerned in silver production, Mexico is the one principally interested in “pure” extraction of silver for its own sake; in the United States, only about 11 per cent, of domestic production (representing 2J per cent, of world production) represents “straight silver” mining. But, though it is difficult to estimate what quantitative effect the present rise will have, it is not difficult to foresee that silver production, starting from approximately present levels, is capable of a considerable increase. In 1929, the world’s output was in the neighbourhood of 262 million fine ounces, the 1933 output was estimated (U.S.A. Department of the Interior, Minerals Year-book) at 165 million ounces only. In 1929 the average U.S.A, price for silver was 53.306 cents per fine ounce; the official buying price today is over 77.87 cents. As the U.S.A. Treasury has announced that it intends to carry the domestic buying price for newly mined silver up to 1.29 dollars an ounce, it is not unreasonable to assume—especially in view of possible economies in costs due to the general fall of world prices since 1929—that if the U.S.A, domestic price will govern the future world price, a level of production far above that of 1929 will eventually be reached. The price of 1.29 dollars per fine ounce is important in quite another respect. The weight in fine silver of a standard U.S.A, dollar is 3711 grains. Consequently out of an ounce of fine silver the U.S. can manufacture dollars worth 1.29 dollars. In other words, if this programme is carried through, the silver content of a dollar will be very near its. face value. The price cannot be carried higher without the risk of wholesale melting of U.S. silver coin. Two entirely different sets of forces have forced the U.S.A. into the path it is at present pursuing. The first is the influence of the “silver party” in the U.S.A, which has never become reconciled to the abandonment of the “dollar of our fathers” and the cessation of the regime of bimetallism _ (i.e., the unlimited acceptance for coinage purposes of both gold and silver by the U.S. mint) at the traditional ratio of 16 to 1 (that is, it required sixteen times as much silver to manufacture a dollar as it did of gold). The first victory of the silver party was represented by the incorporation into the Agricultural Adjustment Act of 1933 of section 43 (b) (2), which virtually permits of the reintroduction of bimetallism into the U.S.A. The only tangible result of the World Economic Conference was equally due to the pertinacity of the silver group, there represented by Senator Pittman.

By agreeing to take a certain, not over-considerable, amount of silver off the market, the principal silver producing countries were protected against India freely disposing of her excess silver stocks, and against China practising a policy of selling silver derived from debasement. As from the end of 1934, the victory of the silver party has been even more pronounced. The buying price of silver was then raised to 64.65 cents., and by the U.S. Silver Purchase Act of June, 1934, it was declared to be the policy of the U.S.A, “that the proportion of silver to gold in the monetary stocks of the U.S. should be increased, with the ultimate objective of having and maintaining one-fourth of the monetary value of ouch stocks in silver.” To carry out this policy would Involve an Immense increase in tho purchases of the U.S. Government, though, for reasons already given, the price of of silver could not riw übova 1.29 dollars, unless th©

“Mint price” of silver were changed, i.e., unless the weight of the silver dollar were reduced.

The second reason which forced on the silver policy of the U.S. Government was tne international propaganda (though that in its turn was largely inspired by the silver party) to the effect that a rise in the world price of silver would greatly benefit China, the one great remaining silver standard country. As early as January, 1932, Professor Gregory, in a report to • the Manchester Chamber of Commerce, argued that the basic idea of this propaganda was radically false and that if the world price of silver rose without a general rise of world prices taking place, the effects would be disastrous for China, since all her exports would cost more in terms of dollars, or sterling, or gold. She would lose silver, because silver would be the one commodity which under these conditions she could export at a growing advantage. Events since have fully confirmed what he then wrote. The present policy of the United States is equivalent to forcing drastic deflation upon China, which she is in no position to bear—nor have the Chinese authorities hesitated to act. They have ' protested against American policy—moreover, they have imposed export taxes on silver equivalent to the rise in the world value of silver, so as to check the export of the Chinese silver dollar. Since export taxes discourage exportation, the amount of dollars in China is greater than it would otherwise have been, which is equivalent to saying that China has attempted to stop the deflationary effects of American policy by giving the Chinese dollar an artificial value inside China.

This is to abandon the silver standard for the time being. But whether it is fully successful is another matter. In any case, to the extent that the Chinese dollar is rising in terms of dollar and sterling,' to that extent China is suffering in the same way as Britain did in 1925, when sterling rose by 10 per cent, without internal costs falling correspondingly.

The American Government is not pledged to any time-table, nor to the purchase of silver outside the limits of its own territory. So long as the world price follows the American price, the silver-producing areas will gain in income and an impetus will be given to world recovery. But it is quite possible to have a world price much below the protected American price, and it would be the height of folly not to take into account the possibility of the world price falling again under the combined influence of additional output, additional supplies of melted silver, and unloading of part of the speculative supply, already estimated at 100 million ounces.

Will the U.S. Treasury keep up the race? To some observers the President has got the bear by the tail and cannot let go. They mean that he must continue to put up the price on the heels of the world speculators. But a full stop was provided in the Silver Purchase Act. This is the achievement of the old coinage value in bimetallist America, 1.29 dollars an ounce. When gold was 20.67 dollars an ounce, this was the famous sixteen-to-one ratio, perhaps the greatest political .battle-cry in the United States in the last fifty years. Already silver Senators are gleefully skipping the 50-cent difference between the prevailing rate and the old coinage value. They maybe depended upon to press toward that goal. And then—bimetallism? It would not sera that Mr Roosevelt is at present disposed to go the whole way. All his advisers have warned him against the dangers of bimetallism, but there is strong pressure behind him.

He knows that the silver move will off-set to some extent the agrarian radicalism in the Middle West. It may not be forgotten that the President is carrying out a policy which was Father Coughlin’s first crusade. As another counter-measure, the President has resumed his nation-wide broadcasts on Sunday, the day after Senator Huey Long invaded the Middle West to take the principal part in a farm convention. The President used the broadcast occasion to explain wherein his policies meet the demands for wealth-sharing and social justice which are rending the air from the spokesmen of the budding third party.