The Story of Silver

by William L. Silber

  FIGURE 10. Treasury Secretary Morgenthau joins the war effort.

  On Friday, October 30, 1942, Colonel John C. Marshall, the Manhattan district engineer, withdrew an initial installment of white metal from the West Point depository.36 He had the shipment of one-thousand-ounce silver bars trucked under heavy guard seventy-five miles south to a U.S. Metals Refining Company facility in Carteret, New Jersey, the first step in their transformation into powerful electromagnetic coils needed to separate fissionable uranium-235 from uranium-238.37 The program would eventually use about one thousand of these giant magnets, each about one hundred times more powerful than anything ever built.38 Plant workers in production facilities at Oak Ridge, Tennessee, who worked near the coils were supplied with special nonferrous tools to avoid hammers and screwdrivers flying out of their hands. Sneakers became the favored footwear for workers after the magnets pulled out the steel nails attaching the sole to the upper part of their shoes.

  The Manhattan Project would eventually use 400,000 silver bars containing 400 million troy ounces, which comes to 14,000 tons, or more than double the original 6,000-ton estimate, and all of it had to be returned to the depository at West Point.39 Armed guards monitored every phase of production to insure that nothing disappeared, and they often helped preserve the precious metal. When workers bored holes in strips of silver to prepare for fastening them together, the guards stood by with pieces of paper positioned to catch the drill dust; and then the workers’ coveralls were vacuumed clean to recapture the residue.40

  But useless restrictions were avoided, according to General Leslie Groves, who was in charge of implementing the project. Stimson had told him to produce the bomb “at the earliest possible date so as to bring the war to a conclusion.”41 Any time “that a single day could be saved … save that day.” Groves sought to strike a balance between security and economy: “The precautions that we took were aimed primarily at concealing our interest in silver, and included the use of coded commercial bills of lading, the direction of all shipments to nonmilitary personnel, and the requirement that our officers wear civilian clothing in many of the plants they inspected.”42 Groves reported after the war that “throughout the entire operation we lost only .035 of one percent of the more than $300 million worth of silver we had withdrawn from the Treasury.”43 The missing $100,000 in silver was a small price for the Treasury to pay compared with civilian sacrifices of zippers and brassiere hooks.

  CHAPTER 10

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  COSTLY VICTORY

  SILVER HAD LOST ITS GUARDIAN ANGEL WHEN KEY PITTMAN DIED on November 10, 1940, but Pat McCarran, the junior senator from Nevada, continued the battle with no less fanaticism, like Stalin picking up where Lenin left off. McCarran was born in Reno in 1876 and spent his entire life in Nevada practicing law and running for political office.1 He made William Jennings Bryan his personal hero and put the white metal on a pedestal: “The greatest value in the world is human energy—and brains, brawn, and muscle are represented in every ounce of silver we produce.”2 The beefy and broadshouldered McCarran was first elected to the U.S. Senate in 1932, when there were about 90,000 people in Nevada and he may have known everyone by name. McCarran told his daughter after the election: “I visited every water hole, town, hamlet, valley and place within the State. There was scarcely a man, woman, or child … that I did not see personally.”3

  McCarran was an admirer of Spain’s fascist dictator Francisco Franco and joined Wisconsin’s disgraced Senator Joseph McCarthy on a communist witch hunt after World War II, but like Pittman he knew how to please his constituents.4 He spent much of the war battling Senator Ted Green of Rhode Island over America’s silver policy. The seven big western states in the silver bloc made the odds 14 to 1 against Green in the upper chamber of Congress, but the senator from the tiniest state made some headway. McCarran would have the last word, of course.

  Theodore Green was born in 1867 in Rhode Island and could trace his lineage back to its founder, Roger Williams.5 Educated at Brown University and Harvard Law School, Green was governor of Rhode Island before being elected to the U.S. Senate in 1936 as an FDR liberal. Like Roger Williams, tolerance ran deep in Green’s blood, and he was a strong supporter of civil rights and religious freedom, but he also favored cheap silver to please his constituents. A thriving silverware and jewelry industry populated Rhode Island and surrounding states. The New England Manufacturing Jewelers and Silversmiths Association was founded in Providence and included about 30,000 workers before the war.6 The restrictions on scarce raw materials imposed by the War Production Board beginning in 1942 threatened those firms in the jewelry industry that could not convert to war production. The abundance of silver at West Point was a tempting target to sustain employment.

  On Wednesday, October 14, 1942, a subcommittee of the Senate Banking and Currency Committee approved a bill introduced by Green to “permit the Treasury to sell non-monetary silver to private industry for consumptive use and to lend monetary silver for nonconsumptive purposes.”7 This meant that the Treasury could, for example, sell free silver to the Progressive Ring Company on Sabin Street in Providence, which employed about ninety workers, to make wedding bands and engagement rings, and could lend the silver that backed silver certificates to the Niagara Hudson Power Company to substitute for copper busbars in their generating plants servicing upstate New York. Henry Morgenthau had already begun lending free silver for the Manhattan Project, but the expansive Green bill permitted outright sales as well as lending monetary silver to anyone if it remained under Treasury control. Morgenthau supported the new legislation but specified that the average sale price of silver under the act “shall not be less than 50¢ per fine troy ounce.”8

  Morgenthau’s 50¢ sale price covered the 48.5¢ average cost of free silver to the Treasury, but that did not satisfy Pat McCarran, who said that senators from the silver states would oppose the Green bill “most heartily.”9 Failure to pass it would mean the Treasury could sell only at $1.29 per ounce or higher as specified in the Silver Purchase Act.10 McCarran met with Morgenthau at his home with a counterproposal that would have permitted sales of free silver for war purposes at 71¢ an ounce if going forward the Treasury paid $1.29 for domestically mined silver. Morgenthau said, “I don’t think you can get away with it.”11

  He almost did. McCarran led a one-man filibuster against the Green bill on Tuesday, December 8, 1942, by reading in a hoarse voice a report on the activities of the Reconstruction Finance Company for 1932 to an empty Senate chamber.12 McCarran’s stocky frame became a human roadblock on the Senate floor and succeeded in preventing the bill, which had the support of the Treasury, the Navy, and the War Production Board, from being considered before the Christmas recess.13 The New York Times editorialized: “This is strictly a war measure which goes no further than a minimum of common sense requires. It would break the ridiculous impasse now existing in which industry is being denied badly needed silver while the Government sits on a huge hoard buried in the ground. It would be better to repeal the whole discredited mess of selfish silver legislation which now requires the Government to continue endlessly to purchase silver at inflated prices and forbids it to sell the metal outright even for urgent war needs, except at prohibitive prices.”14 The editorial probably brought a smile to McCarran’s lips.

  Six months later the Senate voted for the Green bill after it was amended to make the selling price of silver 71¢ an ounce, the same price the Treasury paid for newly mined domestic silver, perhaps because the symmetry appealed to four silver bloc senators on the Banking Committee who switched sides to break the deadlock.15 Senators Abe Murdock of Utah, Worth Clark and John Thomas of Idaho, and James Scrugham of Nevada joined forces with Senator Green, who said this would “prevent the closing of silversmiths throughout New England.”16 McCarran did not like the bill (or the four turncoats) but failed to rally enough support to withhold scarce resources during the war. He viewed it as a temporary setback, like a strategic militar
y retreat that would turn into victory after hostilities ended and the permissive regulations expired.

  McCarran prepared for a counterattack.

  When the Green bill expired on December 31, 1945, four months after Japan surrendered to end World War II, the white metal had become a scarce commodity. Much of the Treasury’s stock was still leased to industry, and silver bullion stored in the West Point depository had dwindled to about 200 million ounces compared with 1.5 billion ounces four years earlier.17 Use of the white metal in electrical equipment, photographic film, silverware, and jewelry exceeded domestic mine output by almost 100 million ounces in each of the previous four years, and the U.S. Treasury had supplied much of the difference with outright sales.18 And as America shifted production from war to peace the shortfall promised to get worse, further shrinking the coverage of the Treasury’s readily available supply of bullion.19

  Soldiers returning from war wanted to get married and raise families, which meant greater demand for sterling place settings as wedding presents and more silver baby spoons nine months later (the natural order of things back then). The demand for apartment furnishings like stoves, refrigerators, chandeliers, and wall mirrors exploded, but R.H. Turner, president of the Mirror Manufacturers Association, warned that without any silver “some in that industry also are facing [a] shutdown.”20 The Wall Street Journal focused on the shortage of the white metal in business: “Film for medical and industrial photography is being shut off.”21 In April 1946 William Thurber, spokesman for the Silver Users Association, said, “Unless Congress grants new authority to dispose of some of the Government’s excess of 225 million ounces underground at West Point, a lot of silversmiths are going out of business.”22

  Senator McCarran rode to the rescue with silver bullets in his gun belt. He proposed an amendment that would fix the value of the white metal at 90¢ an ounce, allowing the Treasury to sell silver to industry at that price and also pay the same for newly mined domestic silver.23 This jump from the prevailing 71¢ subsidized price would last for two years, according to McCarran’s bill, when it would increase to the distinguished $1.29 of Alexander Hamilton and William Jennings Bryan. McCarran urged the return of silver to its full monetary value with an appeal to history: “This does not end the long fight which began with the ‘Crime of 1873,’ when silver was demonetized, but it brings the end of that fight in sight.”24

  McCarran got much but not all of what he wanted. The battle between western miners and eastern silversmiths, a legacy of the class warfare between Bryan’s Democrats and McKinley’s Republicans, had brought congressional appropriations to a standstill, preventing postal workers from receiving their paychecks, but on July 19, 1946, each side compromised to allow the mail to be delivered.25 The legislation raised the price for domestically mined silver to 90.5¢ an ounce, extending the tradition of subsidy established by FDR in December 1933, but avoiding any mention of further increases.26 Congressman Herman Kopplemann, representing silverware companies in central Connecticut, and a member of the House-Senate conference committee negotiating different versions of the bill, considered the omission a victory: “At least we stopped them from putting over the $1.29 an ounce price.”27 Moreover, unlike FDR’s original Christmas present to the silver bloc, which simply paid 64.5¢ per ounce to American mines, the new bill made 90.5¢ a two-way street as long as the Treasury held enough bullion to cover its silver certificate obligations. The Treasury would buy domestically produced silver at 90.5¢ an ounce and could also sell the white metal to industry at that price.28 Few realized at the time that this provision would destroy silver’s monetary crown.

  McCarran died in 1954 and did not live to see President Kennedy lead the coup.

  CHAPTER 11

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  JFK’S DOUBLE CROSS

  CONSPIRACY THEORISTS HAVE TURNED THE ASSASSINATION OF President John F. Kennedy in Dallas on Friday, November 22, 1963, into big business. Hundreds of books have been written attributing JFK’s murder by Lee Harvey Oswald to complicated plots by the CIA, the KGB, the mafia, the John Birch Society, and anyone from Texas, including the sitting vice president, Lyndon Baines Johnson.1 None of these stories impressed the Warren Commission appointed by President Johnson to investigate the assassination, although it did examine the connection between nightclub owner Jack Ruby, who murdered Oswald, and the right-wing John Birch Society.2 The commission concluded that Oswald acted alone but failed to consider whether Kennedy was murdered for downgrading the silver subsidy, a theory worth investigating given the metal’s power to provoke passion and fury in the American heartland.3 It is at least as plausible as the rest.

  John Fitzgerald Kennedy defeated Richard M. Nixon in the 1960 presidential race with little room to spare. Rumors circulated that the Democrats stole the election in Illinois courtesy of Mayor Richard Daley, who performed a miracle of Biblical proportions on the banks of the Chicago River, getting dead people to rise from their graves to vote for JFK, some more than once. But young Americans ignored Kennedy’s shortcomings and embraced the forty-three-year-old president, the youngest ever elected to the office. JFK came from a rich Boston family, went to Harvard, and had a Hollywood leading-man’s full head of hair. His major legislative agenda, which included tax cuts and civil rights, was bottled up in an unfriendly Congress, but like FDR he used presidential executive orders to circumvent the roadblocks.

  In November 1961, less than a year after taking office, JFK announced a major change in America’s silver policy in response to an alarming report from Treasury Secretary Douglas Dillon. A wealthy former investment banker, who went to kindergarten with the Wall Street Journal under his arm, Dillon wrote to the president on Monday, November 27, 1961, that the Treasury’s supply of free silver had dwindled to 22 million ounces. He explained that continued sales to industry under McCarran’s July 1946 compromise caused an unprecedented decline in free silver of more than 80% in less than a year and warned the president of further shortages: “It is clear that under present procedures this stock would soon be entirely exhausted and that the Treasury would thereafter have no further silver available for public sale.”4 Dillon attributed the long-run problem to expanding “industrial consumption of silver” while production “falls far short.” Between 1959 and 1961 industry and foreign coinage used an average of 285 million ounces per year while mine production delivered 198 million ounces.5 Kennedy responded to Dillon on November 28, 1961, writing, “You are directed to suspend further sales of free silver.”

  A New York Times headline greeted Kennedy’s directive with the Lone Ranger’s “Hi-Yo, Silver” and added gravitas with some history: “Silver is back in the news again—shades of William Jennings Bryan and ‘16-to-1’!”6 The president’s message, released in the evening of November 28, made its mark like those western heroes, driving up the price of silver bullion the following day from 91¢ to over $1.00 per ounce. The one-day increase of over 10% matched the price jump when FDR announced the suspension of the gold standard on April 19, 1933.7 The Treasury’s withdrawal from the market meant that major users like the Eastman Kodak Company of Rochester, New York, makers of camera film, and the International Silver Company of Meriden, Connecticut, manufacturers of sterling silverware, would have to bid for the limited supply of the white metal from American and foreign mining companies rather than taking delivery at the nearest office of the U.S. Mint. Western mining men cheered the president’s action, including Robert Hardy, president of the Sunshine Mining Company in Coeur d’Alene, Idaho, who said it was “a good thing for the silver market” and Charles Steen, a minerals speculator from Reno, who said “the law of supply and demand finally caught up with the Treasury.”8 Silver bloc Senator Frank Church of Idaho called Kennedy’s action “the most important step the administration has taken to help the mining industry.”9

  Westerners praised Kennedy’s action for raising the price of silver towards the historic $1.29 until they read JFK’s entire message. Kennedy framed his directive to Tre
asury Secretary Dillon by writing, “I have reached the decision that silver metal should gradually be withdrawn from our monetary reserves,” and predicted that “our new policy will in effect provide for the eventual demonetization of silver,” statements that should have rousted William Jennings Bryan from his grave to challenge JFK’s leadership of the Democratic Party.10 Democrats have elected dead people to office, but Bryan probably stayed put because JFK was so popular and because it was Treasury Secretary Dillon, an East Coast banker and gold standard advocate, who developed the plan to purge silver from America’s monetary reserves.11

  Douglas Dillon, a strapping and strong-jawed financial aristocrat, whose father founded the Dillon Read & Company international banking firm, made a name for himself with keen intellect and a facility with numbers.12 He could read and fully comprehend what he read by the time he was four years old, was educated at the Pine Lodge School in Lakehurst, New Jersey, where his schoolmates included Nelson and Laurence Rockefeller, and received an A.B. degree magna cum laude from Harvard College in 1931. After graduating he became a member of the New York Stock Exchange and at the end of World War II was appointed chairman of Dillon Read, where he doubled the firm’s profits after just a few years.13 Dillon became active in Republican politics and was appointed ambassador to France in 1953 by President Eisenhower and then became undersecretary of state, but his financial prowess convinced JFK to make him secretary of the Treasury.

  Kennedy had been taught by his father that “a nation was only as strong as the value of its currency,” which at the time meant redeemable in gold.14 Foreign central banks could exchange dollars for gold at $35 per ounce in 1961, even though American citizens could not, and this vestige of the gold standard had come under attack by international speculators betting that expansionary economic policies under the new president would provoke inflation and undermine the dollar. According to future Federal Reserve Chairman Paul Volcker, Kennedy chose Dillon to head the Treasury Department as a “reassuring symbol of financial rectitude.”15 Dillon did not waste any time. On October 9, 1961, after less than a year at Treasury and six weeks before his memo on silver to JFK, Dillon quietly reorganized the department’s domestic gold and silver authority, transferring these longstanding policy functions of the director of the mint to Undersecretary of the Treasury Robert Roosa.16 There was no formal announcement of this reorganization, except a routine publication in the Federal Register, but it was a masterful stroke with a double-edged sword to cut silver from the monetary base.