“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.
In 1961, aided by such an unlikely ally as JFK and under major shortfalls between production and consumption, silver approached that price. In early 1962, the Kennedy administration reported to Congress that it was “uneconomical for the U.S. government to lock up large quantities of useful silver in the sterile form of currency reserves.” At the time, $2.1 billion of outstanding silver certificates were backed by 1.7 billion ounces of silver. Echoing the coin shortage of 2020, the winter of 1962-63 similarly saw a dearth of silver coins, causing the political machine to once again move on silver. In the summer of ’63, President Kennedy signed the repeal of the Silver Purchase Act – trading this ancient commodity was once again legal: “For the first time since the Great Depression,” writes Silber,
“Americans could buy silver bullion like citizens of other countries to protect themselves against political uncertainty or inflation rather than hiding their intentions behind candlesticks or tea sets in the dining room cupboard.”
More crucially for our silverite and arbitrage story:
“The free market soon accomplished what a century of political intrigue and manipulation had failed to do. On Monday, September 9, 1963, rising demand for silver spurred traders to push the price of the white metal to $1.29, the legendary monetary value established by Alexander Hamilton.”
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Bullion traders and producers could now source their silver not just from Western or foreign mines, but by acquiring silver certificates and exchanging them against the Treasury’s bullion. For the rest of the 1960s, nickels, dimes, quarters, and halves with varying degrees of silver content in them were collected by speculators and collectors alike, creating a worse coin shortage and setting the scenes for some of the most elaborate trades in the metal’s long history – courtesy of Henry Jarecki and the Hunt brothers.
In time, they all learned and abused the notion that government price fixing, in a world of changing fundamentals, always results in tragedy.
Silber’s book is filled with stories like these, about America’s somewhat strained relationship with silver. That’s one of the book’s disadvantages: it is an American history of silver, and very modern – don’t expect ancient long-distance trade or the Spanish conquest of Potosí. From the “Crime of 1873” when silver was finally ousted as part of the nation’s money, America has suffered an odd relationship with the white metal – a political tale that The Story of Silver explores rather than the financial or monetary history of the metal itself. Silber kindly provides brief biographies of leading politicians, Acts of Congress and, well on the detailed side, voting records for various proposals that did (and would have) impacted the status and market of silver.
The ins and outs of the Hunt brothers episodes are chronicled fully, with details of Congressional hearings, memos, elaborate trades in the futures market, as well as the market manipulation trials in the 1980s. Most of the second half of the book is devoted to this outsized though highly interesting episode. While hyper-focused, it’s very instructive from a commodities-market point of view; those of us who enjoy ingenious trades and how the plumbing of finance operates will much appreciate Silber’s clear and instructive descriptions. If you don’t have personal experience of running around the trading pits of New York or Chicago or lived through the tumultuous decades of the 1960s and 1970s, Silber’s account of spot and futures dynamics, leverage, margin calls and physical deliveries are the second-best thing.
The history of metals as monetary commodities is long, difficult, and highly contentious. With The Story of Silver, William Silber has earned his spot on that part of the library shelf.
Joakim Book is a writer, researcher and editor on all things money, finance and financial history. He holds a masters degree from the University of Oxford and has been a visiting scholar at the American Institute for Economic Research in 2018 and 2019.
His work has been featured in the Financial Times, FT Alphaville, Neue Zürcher Zeitung, Svenska Dagbladet, Zero Hedge, The Property Chronicle and many other outlets.
Republished with permission
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