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The Political History of Silver in America – Silver Doctors

“Gold is the primary store of value for those who mistrust the government, but silver remains the refuge of choice for most people because it is cheaper and more accessible.”

The aptly-named New York University professor William Silber wanted to title his book “Silber on Silver” – but his publisher instead had him settle for The Story of Silver: How the White Metal Shaped America and the Modern World. The wittiness of that remark in the acknowledgements shows the many instances of snark, irony, or amusing tales that are scattered throughout this excellent contribution to the history of monetary commodities. Always playing second fiddle to gold, silver’s status as asset and as money is as riveting as the more widely known history of gold. 

Mostly focused on the U.S., and the three major episodes in which silver as money or hard-money asset played a role, Silber shows that silver prices were always a highly political topic. With characters like William Jennings Bryan, the Roosevelts, the Hunt brothers in the 1960s and 1970s, as well as Warren Buffett briefly in the late 1990s, it’s hard for this journey to fall short of fascinating. 

Many proponents of the gold standard often wave away suggestions that the classical gold standard of roughly 1870 to 1914 was politically enacted. Politicians at the time merely enshrined in law what was already common practice: to overwhelmingly use gold, or gold-backed currency, in trade. Silber shows that the prehistory is a little more nuanced than that, with silver being the relatively overvalued money therefore hoarded and stored rather than transacted with: 

“During the decades before the Coinage Act of 1873 few Americans exercised the option to pay obligations in silver because the white metal was more valuable as bullion. […] silver dominated gold as the preferred currency for most of recorded history primarily because it was scarce but not too scarce, so that it held its value but was sufficiently abundant to support expanding trade.” 

Gold was enshrined in law as America’s base money, demonetizing silver’s such joint-status under bimetallism, during the very decades where newly discovered gold was pouring out of the world’s mines. Between 1850 and 1875, the world unearthed as much gold as the previous 350 years combined. So much for gold’s perennial common practice – historically, there ain’t no such thing as a free-market money. 

We might illustrate Silber’s genius storytelling by another episode that might complement many goldbugs’ knowledge of how monetary metals fared during the Great Depression. Beginning in late 1933, after gold had already been nationalized and confiscated, the Treasury began to intervene in the silver market by paying double market prices for domestic newly-mined silver – all in exchange for political support for FDR’s New Deal from politicians in Western mining states. Nine months later, after having “pushed silver to the highest level since 1929 and bullish speculators had made a bundle,” FDR and his financial right hand, Treasury secretary Henry Morgenthau, nationalized privately-held silver bullion. This again followed the more well-known gold story, but is much less well-known today, even among those who consider Executive Order 6102 the crime of the century. 

Under the Silver Purchase Act, the government acquired silver bullion to the tune of tens of thousands of tons, much of it stored under heavy guard at West Point. At the same time, the Treasury issued certificates that looked much like the now-irredeemable Federal Reserve Notes, but carrying the label “Silver Certificate” – circulating, accepted in payment for taxes, and most crucially, backed by the silver held at West Point. The tie to monetary metal, severed when the U.S. went off gold in 1933, remained a weak and elusive promise with these silver certificates unless the bullion price of silver ever reached the $1.29 break-even point. They would have to wait a good three decades for arbitrage bonanza to wreak monetary havoc.   

Read the full article from Joakim Book at American Institute for Economic Research

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