MONEY & BANKING: Silver Speculation

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We've trod the maze of error round, Long wandering in the winding glade; And now the torch of truth is found, It only shows us where we strayed.

With this quotation from George Crabbe, Economist Dickson H. Leavens prefaces a chapter of "summary and conclusions" in Silver Money, a comprehensive book published last week.* A white-fringed Yaleman of 52, Author Leavens first got interested in silver when he was teaching in Changsha, China, found that his paycheck fluctuated constantly. Today an acknowledged authority, he is employed by the Cowles Commission for Research in Economics, a Colorado Springs nonprofit organization set up in 1932 by Alfred Cowles III.

Under the 1934 Silver-Purchase Law. designed ostensibly to broaden the monetary base, the U. S. Treasury has spent nearly $1,000,000,000 buying silver at the pegged prices (now 64¢ an ounce for domestic silver, 43¢ for foreign silver), a substantial subsidy which has stimulated silver production the world around, driven China off the silver standard. Author Leavens speculates on what would have happened if this law had never passed, concludes that silver miners would have had a hard time, that the price would have fallen sharply, but that eventually a new and satisfactory equilibrium would have been established.

Silver miners, now prospering at the nation's expense, may consider such speculation academic. But last week none other than Chairman Marriner Eccles of the Federal Reserve Board attacked the Silver-Purchase program from an angle which might well give the industry pause. Said he to a Senate committee:

"I happen to be from Utah, which, as you all know, is an important silver State. And I have said to friends of mine there that the foreign-silver purchase program does more in my opinion to ultimately destroy the domestic silver industry than anything else I know. . . . When you buy the world's silver you tend to destroy the use of silver elsewhere in the world. . . ." To document his point, Marriner Eccles pointed out that industrial consumption of silver had fallen more than 50% since the Treasury began gorging on it.