Silver : The Facts and The Controversies
By PROF. T. E. GREGORY.
IMUST begin with a few summary facts about which all parties to the Silver discussion are in substantial agreement. The following six or seven points give the general reader all that he needs to know in order to follow current controversies with a due appreciation of the sta- tistical magnitudes involved.
First, the world production of new silver has in recent years fluctuated round about an average of 250 million fine ounces. To get an idea of what this amount really signifies, it is as well to compare it with the contempo- raneous production of gold. Weight for weight, silver production is about thirteen times gold production. Secondly, the silver market has had to dispose, in recent years, not only of 250 million ounces of new output, but of a large amount of remelted old silver, in the main re- dundant silver money or the surplus arising from re- coining old silver coins with a smaller content of silver. Sales of redundant silver have been made primarily by the Governments of India and of Indo-China : sales as the result of recoinages by Great Britain and the Con- tinent. The net result is that, in addition to having to absorb 250 million ounces of new silver, the silver market his had for find buyers for an annual average output of about 35-40 million fine ounces of " old " silver.
Thirdly, the " new " silver is primarily North American in origin. Of the total world output, about three-quarters comes from Mexico, Canada and the United States, the largest single producer being Mexico. But productive conditions arc very different in the two main producing areas : 80 per cent. of U.S.A. production being " by-product " silver (i.e., derived from mines in which silver is not the main revenue-producing metal), whilst 46 per cent. of Mexico's production is derived from " straight-silver " ores. Altogether, taking the whole world output, 49 per cent. of the silver supply is derived from ores in which silver is the principal source of revenue.
Fourthly, while one Continent supplies the bulk of the silver mined, another Continent consumes the bulk of it. Equilibrium between supply and demand largely depends upon the consumption of silver in two countries—China and India. In the first of these countries silver is the basis of the monetary system ; .ih India silver acts primarily as a "store of value," whether in the shape of ornaments or of hoards. On the average of the years 1928-30, India and China together have taken about 200 million ounces. It follows that if supply remains in the present neighbourhood, the future position of silver depends upon the course of Indian and Chinese demand.
Fifthly, the only Government to-day which has large quantities of silver which it desires, if possible, to get rid of is the Government of India. (The U.S.A. Cox-ern- ment holds very large quantities but does not enter into the problem as a seller of silver.) The amount which India desires to sell—i.e., her surplus stocks—can be estimated at a minimum of 200 million fine ounces.
Lastly and—since it is the direct cause of the present controversy—most importantly, the buying power of silver—i.e., the gold price of silver—has fallen very greatly in recent years. In July, 1929, bar silver sold on the average of the month at 34 pence per ounce ; in February of this year it sold at 12-3 pence per ounce. Since then a recovery has taken place, but the sterling price of silver has risen primarily because sterling has fallen in terms of gold and not because silver has risen in terms of gold.
The advocates of a " forward policy " for silver base their claims upon what they consider to be the disastrous consequences of this decline in the gold value of silver-- which is, of course, equivalent to a rise in the silver value of gold. For the fall in the gold value of silver is equiva- lent, in a country in which silver acts as the standard of value, to a decline in the international purchasing power of the local currency. Such a decline must of necessity, it is argued, reduce the volume of imports into that country, and, in a period of world depression, accentuate the decline in the volume of international trade. The evil effects of a fall in the gold value of silver do not cease at this point. For Chinese external debts arc in the main payable in terms of gold, and a fall in the gold value of silver is equivalent to a rise in the burden of Chinese external indebtedness. Looking at the matter again from the stand-point of a large silver-producing area like Mexico, since silver now sells for a smaller quantity of gold, the purchasing power of Mexico is equally adversely influenced. Again, international trade suffers when, in countries like India, where silver serves as a store of value, a decline in the gold value of silver results virtually in a great destruction of savings. One further point deserves to be mentioned. Is it not possible, by means of action undertaken to help the silver situation, also to relieve the pressure upon gold, and through gold, upon the price level generally ?
Granted, for the sake of argument, that some action ought to be taken, what form ought that action to take ? At the present time, three main suggestions are before the public. The most ambitious takes the form of de- manding the re-introduction of bimetallism—i.e., oblig- ing the Central Banks of the world to buy. and sell not only gold but also silver at fixed prices in terms of currency, thus stabilizing the price of gold in terms of silver and vice versa : fixing the rate of exchange between Europe, America and the East, and, by basing the price-level on two metals instead of one, increasing the chances that prices will be steadier in the future.
The other two plans are based upon the principle of stabilizing the gold price of silver by co-operation. Thus the International Chamber of Commerce desires to see action taken by the American silver-producers in con- junction with the Government of India. Essentially such a plan must embody the principle of withholding from the market supplies both of old and new silver until the diminished supply enables a higher price to be attained. The third plan, devised by Mr. Francis H.
Brownell, of the American Smelting and Refining Co., desires informal co-operation between Governments by which these would pledge themselves not to sell silver below a certain gold price, and to buy silver within the amounts authorized by their laws for subsidiary coinage purposes if the market price is below the stabilization price agreed upon.
I am not greatly in sympathy with those who have put forward the preceding arguments for action. So far as the direct interests of this country are concerned, the fall in the gold (and silver) value of sterling has greatly reduced the urgency of the problem. But, as regards the problem from the standpoint of general world-interest, it is often overlooked that it is not the gold price of silver which alone has fallen, but gold prices generally which have declined. Whilst this fall is in hinny ways 'disastrous (not least because it has increased the burden of all fixed debts), the fact that it is Oficial means that many of the evil consequences antieipated, so far as the East is concerned, have been greatly exalt. gerated. For if gold prices generally fall, the purchasing power of silver in terms of Western commodities, in general has not been reduced. It is true that silver hasfallen in price more than many commodities have and- tei that extent—hut to that extent only—the decline in-silver'has impeded the export trade to the East. It is not the fall in silver which has in general checked Eastern trade, but the decline in world prices, of which the fall in silver is only one part. Moreover, the fall in the gold value of silver leads to consequences the reverse of unfavourable to silver producers. So long as Chinese prices (which are silver prices) have not risen as fast as the gold value of silver has fallen, this very fact encourages silver exports to China, and causes rising prices there and prevents that distracted country from suffering, in addition to invasion and banditry and mis-government, the evils' of deflation as well. • I agree that the technical difficulties of doing some. thing for silver are less than those usually encountered when stabilization - projects are being discussed. But I do not believe that bimetallism is practicable on political grounds, and, even if it were, its effects depend largely on the ratio to be adopted between the buying prices for gold and silver respectively. At tit, present market ratio of 60 to 1 the total . output or new silver is only equal to an output of four million ounces of gold (say, 117 millions gold a year). If it. is desired to raise prices, there are other ways of doing so that require less revolutionary a breach with recent monetary history. But my reason for doubting the expediency of raising the gold price of silver remains. If it were done without at the same time other gold prices rising, it would involve a drastic rise•in the cost of Chinese exports to Western countries, and a drastic restriction of silver consumption in the East. In other words, I believe silver to be not a separate problem, but part of the general problem with which the world must cope, and cope speedily, if civilization is to survive.