Mr. BROWNELL. No. You will have to arrange for silver for that, and China particularly has had her taste of paper money in this war. India undoubtedly, if Great Britain gives her the same status as Canada and Australia, will have to have her independent money, such as these other colonies have. They will want silver. There is a great demand for silver over there today. They cannot meet their needs.

We have under the control of the United States the larger part of the silver of the world. So I hope, if anything is to be done with the great monetary problem we are going to face-and it will then result either in repeal of the Silver Purchase Act or the establishment of international bimetalism at the end of the war-that nothing be done at the present time with that situation, except what the fabricators need. Of course, if the war needs require, you should give them all of the silver today.

The CHAIRMAN. You say there is much more silver than is needed for the war effort?

Mr. BROWNELL. Yes, sir.

Senator MALONEY. I asked you this question before but want to emphasize it: You feel if this bill were amended as suggested by you, that it might provide relief, some relief, to fabricators?

Mr. BROWNELL. Yes, sir; in the emergency.

Senator MURDOCK. But you do prefer that the problem be solved by the W. P. B. and the O. P. A.?

Mr. BROWNELL. Yes, sir. It would be much easier and would be more flexible that way.

Senator MALONEY. That is all this bill does. It gives the W. P. B. an opportunity to solve the problem.

Senator MURDOCK. I hate to disagree with my distinguished friend, but I will say that I expressed my view of it at the last meeting. I am in full agreement with the witness in what he says is the fact as to the silver situation, and no one is better able to know about it than he, that there is ample silver coming in and being produced today to take care of these needs. Why, then, is it necessary to adopt any legislation at this time? That is my view.

The CHAIRMAN. One more question: What would the W. P. B. say or do in this case we have been talking about, would they make a modification of their direction?

Mr. BROWNELL. Yes. For instance, at the present time no one is allowed to buy foreign silver who does not have a priority of a certain class, and I forget the name of it, AAA-3, or something like that. That priority or the one above it is the only one given for war purposes. So that unless you have a priority, which in effect means you are going to use the product for war purposes, to manufacture something of that kind, you cannot buy any foreign silver automatically.

Now, all that they would have to do would be to say that after the demand for war purposes has been supplied you can sell silver to these other people. If there is no demand for war purposes-and of course it must have priority-then the others could have it. Then the silver would be available to the fabricator.

The CHAIRMAN. That would be the simplest way to do it if it could be done.

Senator MALONEY. Yes; if you could get Mr. Nelson to come up here and say, "We have all this worked out" then we would not need the bill.

The CHAIRMAN. But Jesse Jones is buying it.

Senator MALONEY. But he is not distributing it.

The CHAIRMAN. Probably his experience with other commodities has shown the need for that.

Representative WHITE. If the W. P. B. could be induced to raise the ceiling on fabricated silver in line with the price of 71.11, that would be a solution of the problem.

Mr. BROWNELL. Yes; for that would enable them to buy the surplus of United States silver. That would have to be done by the O. P. A. and not the W. P. B.

The CHAIRMAN. Why is it that the average silversmith has to pay 71 cents an ounce for foreign silver?

Mr. BROWNELL. He would only pay 71 cents an ounce, or I mean would only buy 71-cent silver for such an amount as might be necessary to fill his requirements after buying all the foreign silver available to him. That would be around twenty to thirty million ounces of silver.

The CHAIRMAN. Of foreign silver?

Mr. BROWNELL. Of silver that would be necessary for him to have. I mean in addition to what he could get from foreign silver.

Representative WHITE. Mr. Chairman, I should like to extend my remarks in this hearing and include some articles I put into the Congressional Record on the same subject.

The CHAIRMAN. Very well; but do not overdo it. There is no objection to that, is there?

Senator MURDOCK. I think not.

The CHAIRMAN. Thank you very much. We will now adjourn until tomorrow morning at 10:30 o'clock when Mr. Jesse Jones will be here.

(The following letter and attached material was received subsequent to the hearing and ordered printed in the record.)

EDITORIAL ROOMS, THE SATURDAY EVENING POST,
Philadelphia, December 2, 1942.

Senator ROBERT F. WAGNER,
Senate Banking Committee,

United States Senate Office Building, Washington, D. C.

MY DEAR SENATOR WAGNER: I have read in the newspapers some of Senator McCarran's remarks before the Senate Banking Committee concerning the material we published about the silver laws and the so-called silver bloc. If Senator McCarran was quoted correctly by the newspapers, he said that "the editor of the Saturday Evening Post says someone should come into a meeting of 12 Senators and use a lead pipe.'

I presume that Senator McCarran was referring to an editorial which appeared in the same issue of the Post with Dr. Spahr's article, and I am enclosing a, copy of that editorial so that you may see how he distorted our words for his own purposes. I am also enclosing a copy of Dr. Spahr's article.

It is my hope that you will want to put both the article and the editorial in the committee's record of these hearings. It is my understanding that the records of committee hearings are often referred to when a matter of this sort comes before the Senate for debate. With Senator McCarran's distorted interpretation of what the Post said already in the records. it seems to me that the record should be kept straight by including the actual article and editorial.

Sincerely,

BEN HIBBS, Editor.

[The Saturday Evening Post, October 31, 1942]

SILVER IS A STATE OF MIND

After reading in this issue Dr. Walter E. Spahr's article on the scandalous action of the silver bloc in preventing wider use of Treasury silver in the war industries, some Americans may dally with the idea of striding into a meeting of the silver committee armed with a short length of nonmonetized lead. The impulse is comprehensible, for there has seldom been a more demoralizing exhibition of stubborn, obscurantist and wrong-headed selfishness in our history. It would be wrong to conclude, however, that everybody who takes this extraordinary attitude on silver is either a rogue or an owner of silver shares. The machinations of the silver bloc would be impossible if silver had not been endowed many years ago with qualities far transcending its metallurgical or chemical significance. Since the middle 70's silver in the United States has enjoyed theological standing. Gold was the roue of metals, which consorted with Wall Street bankers and foreigners and, in the immortal words of Bryan, attempted to press down upon the brow of labor a crown of thorns. When Grover Cleveland managed, in 1893, to defeat a silver bill, the event was described in Populist newspapers as "John Bull's work." One of them printed a cartoon showing Cleveland and John Bull dancing unsteadily together, singing the familiar saloon ballad, We Wor C Home Until Morning.

Silver, on the other hand, was the money of the plain people, the farmer, and the workingman. How the silver producers managed to produce this hushed reverence for their product has been a matter of research, but the research has not weaned "silver men" from their idol. Andrew Carnegie urged Mr. Cleveland to try it by promising that while he was President "the workingman is going to be paid in as good dollars as the foreign banker." That would probably have had no more effect than the more technical statement which the President actually issued. Silver was, and with some millions still is, a religion.

In spite of all this, there is no excuse for the high priests of the silver sect to continue their disastrous policy. In spite of the vital need of silver in the war industries, fourteen "silver senators" agreed to oppose any legislation to make such silver available. It is hard to believe that those men worship the silver mythology so fervently that they would rather lose the war than eat the shewbread in the temple. If so, it is time for less-goggle-eyed statesmen to take over.

[The Saturday Evening Post, October 31, 1942]

A POWERFUL CONGRESSIONAL

SILVER SCANDAL

By Walter E. Spahr

BLOC HAS BEEN ABLE TO WITHHOLD STOCKS OF SILVER NOW URGENTLY NEEDED IN WAR WORK

[The author, Walter Earl Spahr, whose conclusions on that long-standing economic problem, silver, are presented here, is a well-equipped expert in the field of economics. He is secretary of the Economists' National Committee on Monetary Policy and Professor of Economics at New York University. He has served on the faculities of several American colleges and authored numerous books and discussions in the fields of money, banking, economics, and government. -The Editors.

Silver has recently been dubbed the slacker metal. Not silver but its managers, a small but powerful congressional silver bloc, must bear the brunt of that criticism.

An indictment before the bar of public opinion of those preventing silver from doing its full share in this war would contain the following counts:

Silver is now a strategic metal, badly needed in war industries. Yet a huge unused hoard, barred from industrial use, lies in the Treasury's vaults at West Point, New York.

Civilian silver-fabricating industries are faced with shut-down and thousands of skilled workmen face unemployment because the industry cannot obtain silver.

Secretary of the Treasury Morgenthau has shown that the Governmenthoarded silver supply is more than adequate, if released, for war and civilian industries, as well as coinage. But the Secretary and Donald Nelson, of the

War Production Board, have been prevented from putting Treasury silver to consumptive uses.

The needed Treasury silver is withheld from industry by the congressional silver block for the chief purpose, apparently, of maintaining a subsidy for the silver-mine interests in this country and supporting the beliefs of currency expansionists.

The only concession yet made by the silver bloc permitting silver to join the war effort is the feeble plan to lend some Treasury silver for purposes where it will not be consumed and to maintian a defective brand of silver certificates in circulation.

The silver bloc has maneuvered our Government into permitting our importers to pay premium prices for Mexican silver to protect the subsidy of our domestic silver producers.

These charges, and the facts which support them, picture the current tactics of the congressional silver bloc as another unfortunate chapter in a decade of unfortunate silverite history.

Today, war industry badly needs as much of our hoarded Treasury silver as it can get. Silver is needed as an ingredient in high-grade solder, in durable electrical contacts, connections, coils, and antennae, and engine bearings, particularly in heavy-duty and radial-type air-cooled engines. It is needed in airplane controls, gun mechanisms and in a multitude of electrical devices vital in war. It is needed as a silver-brazing alloy. It is needed to provide corrosion-resistant surfaces on other metals and for surgical and medical instruments. It is needed in photography, container linings, mirrors, medicine, dentistry, and certain chemical industries.

If other strategic metals were abundant, silver might retain its sanctified position and do nothing for war industry. But when critical metals turned up painfully short, Donald Nelson applied ot Secretary Morgenthau for metal relief in the form of Treasury silver. The secretary promptly stopped purchasing foreign silver and arranged to direct all such silver into war industries at approximately the same price, 35 cents a fine ounce.

Imports of silver cannot supply war-industry needs. But when he had accomplished diversion of imports, Morgenthau had done all he could to provide silver for industrial consumption. He could, however, release on loan without asking for legislative authorization what is known as the Treasury's free silver. This is the silver not needed as coin or as a reserve against outstanding silver certificates, and when it is lent it must be returned. It cannot be consumed.

In April-May 1942, the Treasury's free silver totaled about 47,000 short tons and, effective May 6, Morgenthau made an agreement with Nelson to lend 40,000 tons to the Defense Supplies Corporation for use as bus bars in electrolytic and other defense plants. This silver was to be returned intact after the war. Meanwhile it would substitute for a somewhat larger amount of copper thereby released for other important war work.

But Donald Nelson needed, and needs, more than the 40,000 tons, and more than the remaining 7,000 tons of Treasury free silver. He needs part of the additional 66,500 tons which the Treasury owns, but which is not legally free. For one thing, synthetic-rubber production would be hastened if silver could be used in new plants. There are a great many other uses of similar importance for silver, but they all would consume the metal and it could not be returned to the Treasury. Since the Secretary cannot sell any of his accumulated silver except under conditions not likely to be realized, the obvious and simple way of getting silver into productive service is to repeal the various silver-purchase laws which tie his hands. Morgenthau has recommended that very thing. In a press conference on March 30, 1942, he said, "I have recommended twice now on the Hill this year that all silver legislation be struck off the books." His recommendation was supported by Marriner Eccles, chairman of the Board of Governors of the Federal Reserve System, and by a large group of experienced monetary economists.

But the silver bloc said "No." Furthermore, they required the Secretary of the Treasury, as the price for any cooperation from them, not to ask for repeal of their silver-purchase and silver-subsidy laws. Not only that; they got from him a truce according to which he could-handle silver problems only as this bloc decided.

The silver bloc's power over silver in this nation is partly revealed in the very existence of this truce. Members had heard that Morgenthau was preparing legislation to repeal the silver-purchase laws, so that he could put Treasury silver at the disposal of war and civilian industries, probably at natural market prices much below the artificially high subsidy prices sustained by the silver-purchase laws. They sent for the secretary in April, exacted a promise he would not seek

repeal of their laws, and tied his hands until they should decide what was to be done about the silver issues. Meanwhile Morgenthau had lent 40,000 tons of free silver to Donald Nelson.

The silyer bloc then decided to hold full-dress hearings in May at which both Secretary Morgenthau and Donald Nelson were to be called upon by the Senate Special Silver Committee to answer some questions. Mr. Nelson was to justify, if he could, the priority orders which were issued to prevent the flow of scarce mining machinery into silver mines, and his request at the same time for Treasury silver for use in war industries. Secretary Morgenthau was to ask them how he could let Mr. Nelson have more than the free silver in the Treasury.

It had been announced before the hearings that monetary economists who had urged repeal of the silver-purchase laws would be asked to testify, but none of them was called. Instead, most of the witnesses, besides Morgenthau and Nelson, were officers of silver mines and representatives of silver-mining associations.

Because Secretary Morgenthau was already committed by his April promise not to ask the silver bloc for repeal of the silver-purchase laws, he and Mr. Nelson asked for no more than authority to lend all Treasury silver, if necessary, for nonconsumptive uses in war industries, a mild request..

Apparently not being fully satisfied that the secretary's earlier promise was emphatic enough, they insisted at the May hearings that he cooperate with them, as a prerequisite to his cooperation with Mr. Nelson, and applied pressures of such a nature that the secretary considered it expedient to enter into a "truce" with them in order to avoid a probable "unpleasantness.'

Exacting from him a demanded "emphatic no" that he would not "impair the integrity and value of silver in the monetary system of this country" by asking for a repeal of the silver-purchase laws, Secretary Morgenthau gave the desired answer and said: "By my saying emphatically to you 'No,' it establishes what I shall call, for want of a better name, a friendly truce." Further on he revealed his deference to the silver bloc's power in these words: "I do not want to disturb the status quo of the silver-monetary situation at all in coming up here and asking on behalf of the Treasury to make it legally possible to lend silver. We will continue in the same way we have since 1934. To use the vernacular, what I should like to say to this committee is that we won't start anything if you won't start anything.'

As their part of the agreement, the members of the silver bloc were to agree not to press for some of the things they wanted, such as the issuance of silver certificates against the unused silver seigniorage held by the Treasury. One result was the appointment by the Senate Special Silver Committee of a subcommittee to draft legislation enabling Morgenthau to lend more than free silver to the WPB, although no amount was specified. A more specific result was agreement that silver lent by the Treasury as nonconsumable metal could at the same time serve as "security" for the silver certificates which were to remain outstanding.

When the question of the redeemability of these certificates was raised, Senator Wiley (Wisconsin) put his finger on the fallacy and danger involved when he said, facetiously, that a person wishing to redeem a silver certificate in silver "could go down and take a piece off a bus bar."

Outside, looking in

Up to date, the subcommittee has failed to draft the agreed bill permitting the lending of the desired amount of Treasury silver to the WPB.

Out of all this maneuvering, no solution to the problem appeared. War and civilian industries need consumable silver and they cannot get it by any lending agreement, no matter what its terms. Last May the Treasury owned 113,500 short tons of silver. Adding estimated imports of 4,110 tons and domestic production of 2,123 tons makes a rough total supply of 119,700 tons, less what has already been imported and mined thus far in 1942 and hence included in the first supply figure. It is estimated that military and civilian demand for silver will be 71,285 tons, including 60,000 tons lent or to be lent. Assuming that the silver were released to these demands, there would still be 48,415 tons remaining, which, together with annual production and imports, is estimated by the Treasury as ample to maintain an adequate volume of silver coins after supplying all military and civilian needs, if the silver laws are repealed and the Treasury is permitted to sell its metal. Annual civilian and miscellaneous use would be 11,285 tons.

Because the civilian silver-fabricating industries, under the operation of our silver laws, had been depending upon foreign silver as their source of supply, they suddenly found themselves facing disaster when the Treasury began, on May twenty-second, through the WPB, to direct foreign silver into war industries.