SILVER POLICY.

Star (Christchurch), Volume LXVI, Issue 20364, 23 July 1934, Page 5

SILVER POLICY.

Merely Meant to Deflate Inflationists. MORGENTHAU’S “ ENTHUSIASM.” (By PAUL MALLOX.) WASHINGTON, June 18. The silver policy is like an electric fan; it goes through a lot of motions, but it never gets anywhere and is not supposed to. The only thing it accomplishes is to keep the silverites and inflationists cool for the time being. That is the story, the whole story, and nothing but the story behind the announcement by Treasury Secretary Morgenthau that he is buying silver “ enthusiastically,” that he is going to bid up silver prices graduallv by purchases until he has a 25 per cent silver, backing for the currency. No one can dispiite any part of Mr Morgenthau's announcement, except possiblv his use of the word ” enthusiastically.” He may have a different conception of his own energy than other people have. But no one can find out about that, because no one can find out how much silver Mr Morgenthau is really huving. The operations of his stabilisation fund are secret.

The market-wise experts in silver say that, whatever the amount is. it cannot be very much. They think the Treasury bought one fairly large chunk of silver, and then made numerous smaller purchases. However, the currency to be issued against it. in any event, is net enough to be small change in comparison with the total amount of money in circulation. In other words, it does not mean inflation. “ Let’s Try Silver.’* There has been a story going around on the inside that the President, having dropped the fruitless effort Lo increase commodity prices by buying geld, will now try to accomplish the same purpose by buying silver. President Roosevelt is quoted in Senatorial circles as having said to a certain Senator: “ Well. now that the gold policy failed, we might as well see it silver will fail ”

The President may have been quoted accurately, but still that does not make Mr Morgenthau’s enthusiasm any more significant. The Treasury did not buy enough gold to fill an elephant’s molars. There is not enough purchasable silver available to permit a forceful effort to influence general commodity prices, or to establish a 25-75 silver-gold ratio during this generation. There was some real inflation over the Treasury announcement, but it lasted only about fifteen minutes. Commenting on the announcement, one Treasury official said that the silver had been bought at 50 cents an ounce, but the money to be issued against it would be based on the old silver value of 1.29 dollars an ounce. The inflationary prospects of a policy like that are enormous. After fifteen minutes of fluttering among Treasury experts, it was stated that the announcement was erroneous. The policy in that respect had not been determined. When it is determined, it will provide for the issue of currency on the value of the purchase price. The difference between that price and 1.29 dollars will be carried on the Treasury books as an unvalued commodit}*, like office furpiture. You have to ’be a magician to keep Treasury books these days. Effect on China. Everyone will remember that one cf the original reasons for embarking on the silver poliev was to help trade with China. Recently, the Bank of China expressed some views as to the effects of the policy thus far. They might be thumbnailed as follows: “An artificial increase in the price of silver is fraught with danger to China. Already there has been a continuous drain of silver from the interior to Shanghai, and this must ultimately end in a contraction of currency and credit in the up-country, a fall in commodity prices, and the bankruptev of rural economy. “ China’s purchas ; ng power in foreign markets depends, not upon the establishment of an artificial!v nigh price for silver, but upon the value of her export trade in commodities.” That means that our silver poliev is hurting Far Eastern trade instead of helping it.—N.AA'.A. Copyright.