The Story of Silver

by William L. Silber

40. “Silver Stirs World Turmoil: Mexico Closes Banks, Trading Wild in Europe,” Chicago Daily Tribune, April 28, 1935, p. 1.

  41. Allan S. Everest, Morgenthau, The New Deal and Silver (New York: King’s Crown Press, 1950), p. 79.

  42. Morgenthau Diaries, vol. 5, pt. 1, p. 38.

  43. See “Silver Nations Plead with U.S. for Protection,” Christian Science Monitor, April 27, 1935, p. 1.

  44. The drop of 5.3% on April 27 is significant compared with the daily standard deviation of 1.4% over the previous 90 calendar days. This standard deviation is 2½ times larger than the .56 standard deviation of early April.

  45. See Leavens, Silver Money, p. 284, and “Mexican Business Recovering from Monetary Changes,” Christian Science Monitor, May 17, 1935, p. 11.

  46. “Everybody’s Business: Silver Market Waiting for Action by Treasury— ‘Rigged’ by Buying Operations,” Boston Globe, April 29, 1935, p. 19.

  47. Leavens, Silver Money, p. 304, reports that in 1935 smuggling estimates ranged between 112 million ounces and 172 million ounces, for an average of 142 million ounces. Smuggling occurred, according to Leavens (p. 297), because the value of silver in the yuan was fixed lower than its value in the market, and the Chinese Ministry of Finance imposed restrictions on purchases and sales of foreign exchange (p. 303) and had secured a “gentlemen’s agreement” with banks to prevent exports of silver. The restrictions blunted the rise in the yuan but did not eliminate the increase. Leavens (p. 306) shows the yuan rising with the price of silver although less sharply because of controls.

  48. “Japanese Rout Forces of Rebels in China,” New York Times, May 23, 1935, p. 15; and “300 Chinese Slain Inside Great Wall,” New York Times, May 26, 1935, p. 23.

  49. This quote and the next are from “China: Japan’s at It Again,” Washington Post, May 26, 1935, p. B2.

  50. “Japan Denies Plans for Invading China,” New York Times, June 1, 1935, p. 2.

  51. Ibid.

  52. The telegram is dated May 31, 1935. U. S. Department of State, United States Diplomatic Papers, 1935. Far East, 3, p. 190.

  53. Joseph Grew to Cordell Hull, telegram, June 11, 1935, ibid., 3, p. 230.

  54. “Chinese Abandon Silver Standard; Note Issue Unified,” New York Times, November 4, 1935, p. 1. There has been considerable debate among economists over the extent of the Chinese deflation and its connection to America’s Silver Purchase Act. The main proponent of a close link between the American silver program and deflation in China is Milton Friedman, “FDR, Silver, and Inflation,” in Money Mischief. This view is challenged by Loren Brandt and Thomas Sargent, “Interpreting New Evidence about China and U.S. Silver Purchases,” Journal of Monetary Economics 23, no. 1 (1989): 31–51. Friedman’s view is supported by Richard Burdekin, China’s Monetary Challenges: Past Experiences and Future Prospects (Cambridge, UK: Cambridge University Press, 2008), chap 5. My own judgment is that the extensive contemporary coverage, both among professional economists and journalists, confirms the Friedman view. See especially Leavens, Silver Money, pp. 307ff, 314.

  55. The full currency reform decree appears in Young, China’s Nation-Building Effort, pp. 484–85.

  56. The discussion in this paragraph and the quote are from Morgenthau Diaries, vol. 10, September–October 31, 1935, pp. 180–81, available at http://www.fdrlibrary.marist.edu/archives/collections/franklin/?p=collections/findingaid&id=535&q=&rootcontentid=188897#id188897.

  57. This quote and the next are from Morgenthau Diaries, vol. 11, November 1–November 14, 1935, pp. 50–51, available at http://www.fdrlibrary.marist.edu/archives/collections/franklin/?p=collections/findingaid&id=535&q=&rootcontentid=188897#id188897.

  58. This conversation is excerpted from ibid., pp. 63–64.

  59. “China’s Money Plan Angers Japan,” New York Times, November 5, 1935, p. 1.

  60. Ibid.

  61. This and the remaining quotes in this paragraph are from New York Times, November 6, 1935, p. 24.

  62. “Why America Must Stand Firm in the Far East,” December 27, 1934, in Joseph C. Grew, Ten Years in Japan (New York: Simon and Schuster, 1944), p. 148.

  63. “Jap Militarists Renew Drive to Seize North China,” Chicago Daily Tribune, November 23, 1935, p. 4.

  64. “Japanese March into North China; Seize Rail Centre,” New York Times, November 28, 1935, p. 1.

  65. “Hull’s Warning on China,” New York Times, December 6, 1935, p. 16.

  66. This quote and the next two are from “Japan’s ‘Frank Statement’,” Manchester Guardian, December 6, 1935, p. 11.

  67. “Jap Militarists Renew Drive to Seize North China, Chicago Daily Tribune, November 23, 1935, p. 4.

  68. “New State Born in North China; Japs in Control,” Chicago Daily Tribune, December 8, 1935, p. 5. The quote is from Barbara Tuchman, Stilwell and the American Experience in China, 1911–45 (New York: Grove Press, 1970), p. 151.

  69. “North China Plans Its Own Currency,” New York Times, December 17, 1935, p. 18.

  70. “China: Warned and Bombed,” Washington Post, December 22, 1935, p. B2. Also see “Tojo and 6 Others Hanged by Allies as War Criminals,” New York Times, December 23, 1948, p. 1.

  71. See Borg, United States and the Far Eastern Crisis, p. 299.

  72. George B. Roberts, “The Silver Purchase Program and Its Consequences,” Proceedings of the Academy of Political Science 17, no. 1 (1936): p. 23.

  73. For the initial favorable impact, see Leavens, Silver Money, p. 323, who writes, “Contrary to the misgivings of many, the new currency system was eminently successful … during 1936 and 1937.” The inflation under wartime pressure is discussed in Everest, Morgenthau, New Deal and Silver, p. 123, who writes, “Kung … took the easy way out and printed paper. Circulating currency rose from a billion and a half dollars in 1937 to a trillion in 1946; prices followed a similar trend until V-J day they stood at 2,500 times the prewar level.” Also see Friedman, Money Mischief, p. 179: “The issue of notes multiplied 300-fold from 1937 to 1945, or an average of 100 percent a year. … Prices rose even faster … or an average of 150 percent a year.” Friedman (p.181) acknowledges that “war … would have led to inflation. … However, in the absence of the silver purchase program, the Nationalists would probably have had an extra year or two during which inflation would have been low. … The existence of the silver standard would have been a check on inflation.”

  74. Morgenthau Diaries, vol. 13, December 1–December 12, 1935, p. 90, available at http://www.fdrlibrary.marist.edu/archives/collections/franklin/?p=collections/findingaid&id=535&q=&rootcontentid=188897#id188897.

  75. Ibid., p. 89. Morgenthau writes that “silver can only be gotten into Japan by smuggling it out of China and somebody is making the difference between 40¢, approximately what you can buy silver for in China, and 65¢, the world price.”

  76. This quote and the remaining in this paragraph are from ibid.

  77. All of the quotes in this paragraph are from ibid., p. 90.

  78. Handy & Harman’s free market price varied between 65.75¢ and 65.375¢ during the four-month period.

  79. Wall Street Journal, December 10, 1935, p. 1.

  80. “New York Mystified,” Manchester Guardian, December 11, 1935, p. 14.

  81. Ibid.

  82. This and the following quotes are from Morgenthau Diaries, vol. 13, p. 218.

  CHAPTER 9: SILVER LINING

  1. The information in this paragraph is based on “Moving of Silver to Vault Is Begun,” New York Times, July 6, 1938, p. 5; and on “Huge Silver Vault Gets First Deposit,” New York Times, July 7, 1938, p. 21.

  2. The 45,000-ton estimate comes from the approximately 1.3 billion ounces purchased under the Silver Purchase Act (see Leavens, Silver Money, p. 273, table 15), when converted from troy ounces into avoirdupois ounces by multiplying the troy ounce total by a factor of 1.1. The 70,000 tons mentioned in the July 7, 1938, New York Times article refers to the total capacity of the West Point depository at that time. See “U.S. to S
end Silver Here,” New York Times, May 9, 1938, p. 29.

  3. Roberts, “Silver Purchase Program and Its Consequences,” p. 22.

  4. Ibid., p. 23.

  5. “Treasury Department Appropriation Bill for 1938,” p. 34.

  6. The silver dollar coin contains 371.25 grains of silver according to the Mint Act of April 2, 1792. Since there are 480 grains in a troy ounce, the silver dollar contains 371.25/480 = .7734375 ounces of pure (999 fine) silver. The $1.29 price of an ounce is 1/.7734 = 1.292929.

  7. The formal order forcing Americans to divest their gold holdings was issued on April 5, 1933, “Executive Order 6102—Requiring Gold Coin, Gold Bullion and Gold Certificates to Be Delivered to the Government,” April 5, 1933. Online by Peters and Woolley, American Presidency Project.

  8. “Silver’s Subsidy,” Washington Post, December 28, 1937, p. 7

  9. See Richard Burdekin and Marc Weidenmier, “The development of ‘nontraditional’ open market operations: Lessons from FDR’s silver purchase program,” in The Origins and Development of Financial Markets and Institutions from the Seventeenth Century to the Present, ed. Jeremy Attack and Larry Neal, pp. 319–44 (Cambridge, UK: Cambridge University Press, 2009).

  10. The data in this sentence and the next are from Y.S. Leong, Silver: An Analysis of Factors Affecting Price (Washington, DC: Brookings Institution, 1933), p. 97.

  11. Franklin D. Roosevelt, “Annual Budget Message,” January 5, 1942. Online by Peters and Woolley, American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=16231.

  12. See Franklin D. Roosevelt, “Executive Order 9024 Establishing the War Production Board,” January 16, 1942, Online by Peters and Woolley, American Presidency Project.

  13. The U.S. Department of the Treasury, Annual Report of the Secretary of the Treasury, for the Fiscal Year Ended June 30, 1941 (Washington, DC: Government Printing Office, 1942), p. 254, reports that the West Point depository contained 1,542,694,885 ounces of silver bullion.

  14. Roosevelt, “Executive Order 9024,” American Presidency Project.

  15. “Wartime Curb on Newspaper Size Predicted,” Chicago Daily Tribune, January 28, 1942, p. 25.

  16. “WPB Plans to Build Stockpile of Cloth,” New York Times, January 29, 1942, p. 29.

  17. “Brass Discontinued for Shoe Eyelets,” Washington Post, January 28, 1942, p. 22.

  18. “WPB Halts Output of Metal Zippers,” New York Times, March 31, 1942, p. 33.

  19. Ibid.

  20. The steel penny was launched in February 1943, and distribution was ended in the last week of December 1943. See U.S. Department of the Treasury, Annual Report of the Secretary of the Treasury, for the Fiscal Year Ended June 30, 1943 (Washington, DC: Government Printing Office, 1944), p. 263.

  21. “Steel Pennies Move into Use Quickly; Complaints Grow,” Chicago Daily Tribune, September 5, 1943, p. 4.

  22. “Minting of Steel Pennies to End This Year: New Coin to Be of Salvaged Cartridge Shells,” New York Times, October 23, 1943, p. 15; and “End of a Bad Penny,” New York Times, December 28, 1943, p. 16.

  23. For a description of free silver and the 1.3-billion-ounce estimate see Annual Report of the Secretary of the Treasury for 1943, p. 364.

  24. Morgenthau Diaries, vol. 512, April 1–2, 1942, p. 86, available at http://www.fdrlibrary.marist.edu/archives/collections/franklin/?p=collections/findingaid&id=535&q=&rootcontentid=188897#id188897.

  25. This quote and the next are from “Using Silver for War,” Washington Post, March 30, 1942, p. 11.

  26. “Morgenthau Advocates Wiping Out Silver Laws,” New York Times, February 4, 1943, p. 10.

  27. “Treasury Weighs Use for Its Silver: Seeks Way under Law to Meet WPB’s Desire to ‘Lend’ It for Industrial Use,” New York Times, March 31, 1942, p. 33.

  28. Edward Foley to Henry Morgenthau, memorandum, March 30, 1942, Morgenthau Diaries, vol. 514, pt. 1, April 7–9, 1942, pp. 76–79, and Henry Morgenthau to Francis Biddle, April 1, 1942, Morgenthau Diaries, vol. 512, p. 86, available at http://www.fdrlibrary.marist.edu/archives/collections/franklin/?p=collections/findingaid&id=535&q=&rootcontentid=188897#id188897.

  29. Biddle’s letter is in Morgenthau Diaries, vol. 514, pt. 1 pp. 81–86; and the public announcement is in “40,000 Tons of Silver ‘Loaned’ for Busbars,” New York Times, April 8, 1942, p. 8 (the dateline on the story is April 7).

  30. “40,000 Tons of Silver ‘Loaned’ for Busbars,” New York Times, April 8, 1942, p. 8.

  31. For the start of the program, see U.S. Department of the Treasury, Annual Report of the Secretary of the Treasury, for the Fiscal Year Ended June 30, 1942 (Washington, DC: Government Printing Office, 1943), pp. 45, 184.

  32. Morgenthau Diaries, vol. 564, August 29–31, 1942, pp. 15–17, available at http://www.fdrlibrary.marist.edu/archives/collections/franklin/?p=collections/findingaid&id=535&q=&rootcontentid=188897#id188897. Clear photocopies of these pages were provided by Kendra Lightner, Archives Technician, FDR Presidential Library and Museum.

  33. Six thousand tons translates into 175 million troy ounces as follows: 2,000 avoirdupois pounds times 6,000 tons equals 12 million avoirdupois pounds times 16 avoirdupois ounces equals 192 million avoirdupois ounces, which must be divided by 1.097 to take account of the extra weight in a troy ounce, which produces 175,022,789 troy ounces.

  34. Leslie R. Groves, Now It Can Be Told: The Story of the Manhattan Project (New York: Harper & Row Publishers, 1962), pp.107–8.

  35. According to Stimson, Morgenthau was not happy about being kept in the dark, angry that he was not “fit to be trusted with the secret.” See Robert S. Norris, Racing for the Bomb (South Royalton, Vt.: Steerforth Press, 2002), pp. 203 and 337–38.

  36. See Cameron Reed, “From Treasury Vault to the Manhattan Project, American Scientist 99, no. 1 (January 2011): p. 44.

  37. Ibid.

  38. Norris, Racing for the Bomb, p. 203.

  39. Reed, “From Treasury Vault,” p. 44.

  40. Ibid., p. 45.

  41. This quote and the next are from Elting E. Morison, Turmoil and Tradition: A Study of the Life and Times of Henry L. Stimson (Boston: Houghton Mifflin Company, 2003), p. 621.

  42. Groves, Now It Can Be Told, p. 109.

  43. Ibid.

  CHAPTER 10: COSTLY VICTORY

  1. For a concise biographical sketch of McCarran see http://www.onlinenevada.org/articles/patrick-anthony-mccarran.

  2. See Michael J. Ybarra, Washington Gone Crazy: Senator Pat McCarran and the Great American Communist Hunt (Hanover, N.H.: Steerforth Press, 2004), p. 29.

  3. Jerome E. Edwards, Pat McCarran: Political Boss of Nevada (Reno: University of Nevada Press, 1982), p. 45.

  4. See ibid., p. 147, for McCarran and McCarthy, and ibid., p. 132 for McCarran and Franco.

  5. For biographical information, see Erwin L. Levine, Theodore Francis Green: The Washington Years (Providence, R.I.: Brown University Press, 1971) and “Theodore Francis Green of Rhode Island,” at http://knoxfocus.com/2013/08/theodore-francis-green-of-rhode-island/.

  6. See Senate Subcommittee of the Committee on Banking and Currency, “To Authorize the Use for War Purposes of Silver Held or Owned By the United States”: Hearings on S. 2768, 77th Cong., 2d sess., October 14, 1942, p. 26.

  7. “Subcommittee Backs Bill for Silver Sale,” New York Times, October 15, 1942, p. 9.

  8. See Senate Subcommittee of the Committee on Banking and Currency, “To Authorize Use for War Purposes,” p. 6.

  9. The McCarran quote is in “Subcommittee Backs Bill for Silver Sale,” New York Times, October 15, 1942, p. 9.

  10. The restriction on Treasury sales is in section 4 of the Silver Purchase Act, which contains an exception if the value of silver stocks in the Treasury exceeds 25% of the total value of gold and silver. This exception was not operative.

  11. Morgenthau Diaries, vol. 578, October 10–15, 1942, pp. 24–25, available at http://www.fdrlibrary.marist.edu/archives/collections/franklin/?p=collections/findingaid&id
=535&q=&rootcontentid=188897#id188897.

  12. “McCarran Halts Senate on Silver,” New York Times, December 9, 1942, p. 47.

  13. “McCarran Succeeds in Killing Silver Bill,” New York Times, December 12, 1942, p. 8.

  14. “Silver for War Work,” New York Times, November 23, 1942, p. 22.

  15. See “Senate Vote Silver Bill for Its Use in Industry,” New York Times, June 19, 1943; and “Bill to Release U.S. Silver Goes to White House,” Christian Science Monitor, July 6, 1943, p. 14.

  16. “Bill to Sell Federal Silver Gets Approval,” Christian Science Monitor, May 12, 1943, p. 18.

  17. The balance at West Point is reported at 235 million ounces on June 30, 1945, U.S. Department of the Treasury, Annual Report of the Secretary of the Treasury, for the Fiscal Year Ended June 30, 1945 (Washington, DC: Government Printing Office, 1946), p. 230, and at 172 million ounces on June 30, 1946, U.S. Department of the Treasury, Annual Report of the Secretary of the Treasury, for the Fiscal Year Ended June 30, 1946 (Washington, DC: Government Printing Office, 1947), p. 216.

  18. See Charles Merrill and Helena Meyer, “Gold and Silver,” in U.S. Bureau of Mines, Minerals Yearbook 1946 (Washington, DC: Government Printing Office, 1948), p. 561 for domestic production, and p. 577 for industrial consumption, available at http://digital.library.wisc.edu/1711.dl/EcoNatRes.MinYB1946. Also see Everest, Morgenthau, New Deal and Silver, pp. 164–66.

  19. The amount of free silver in the Treasury’s General Fund was valued on a cost basis as $324 million on June 30, 1945, and at $102 million on June 30, 1946. See the table entitled “Condition of the Treasury Exclusive of Public Debt Liabilities” in the Annual Report of the Secretary of the Treasury for 1945 (p. 612) and 1946 (p. 430).

  20. “Acute Shortage Threatens Many Silver Producers,” Hartford Courant, April 20, 1946, p. 14.

  21. “Senate Delays on Silver Cuts Supply of Film,” Wall Street Journal, June 17, 1946, p. 4.

  22. “Acute Shortage Threatens Many Silver Producers,” Hartford Courant, April 20, 1946, p. 14.

  23. “West’s Silver Bloc Seeking 19 Cent Boost: Remonetization Expected in Two Years,” Chicago Daily Tribune, April 26, 1946, p. 31.