Our silver-fabricating firms could not afford to buy domestically produced silver at the subsidy price of 71.11 cents an ounce. Practically all this silver, under the terms of the silver bloc's subsidy law of July 6, 1939, has, since that date, been sold to the Treasury and added to its hoard.

Since May, the War Production Board and the Office of Price Administration have been juggling the fate of the "nonessential" silver industries. First the WPB sharply rationed silver to these industries and stipulated that after October first no foreign silver could be used except under priorities. Then the OPA, on August twenty-eighth, issued an order providing that the semifabricating companies, makers of silver sheets, blanks, and so on, could pay the Treasury price for silver, 71.11 cents an ounce, and could pass on to their fabricating customers the increased costs. Previously the level of semifabricated and fabricated products had been fixed by OPA on a basis of silver costing 35% cents. In another August twenty-eighth order the OPA authorized importers of silver to pay up to forty-five cents for Mexican silver, which is of limited interest to nonwar buyers, since practically all silver from Mexico is directed into war industries.

Both these OPA orders are victories for the silver bloc. The first protects the subsidy to our silver mines by making semifabricators pay the Treasury price for domestically mined silver, or, in other words, to pay the subsidy themselves and pass the charge on to their customers. The second chiefly increases the cost of silver to our armament industries and is a concession to Mexican producers, who thereby profit because we do not make proper use of the ample supply held by our own Treasury.

It is not easy to say who comprise the silver bloc, in recent years or today. Votes approving silver measures sponsored by the managing group of silverites have not all come from legislators belonging to the silver bloc, naturally, since for nine years the inner circle of silverites taking care of the silver interests has recruited majorities for practically every silver measure offered in the House and Senate.

Silver in the Senate

Nor is the silver bloc merely the closely knit managerial group of silver-minded men in Congress. Surrounding them is a varying group of congressmen who, for one reason or another, rather consistently join forces with the silver managers. The currency expansionists of almost every variety generally support the silverites. The farm bloc usually throws at least part of its strength behind the silverites, chiefly because the farm bloc traditionally leans toward currency expansion. Outside Congress are active leaders and lobbyists of the silver-mining industry who furnish powerful aid.

It might be supposed that a list of senators and representatives from the silver states would provide a good clue to the membership of the silver bloc. It is not, however, a reliable guide, although it is helpful. Ranked according to production in 1940, the most important silver-producing states are Idaho, Montana, Utah, Arizona, Colorado, Nevada, California, New Mexico and Texas. Of these, the first six are the heart of silver production and often listed as the silver states.

Even though the membership of the silver bloc cannot be clearly delimited, the leadership is easily identified. It rests chiefly in the Senate Special Silver Committee, organized in 1935, a committee that illustrates the remarkable influence of the silverites over the Senate. The Senate has permitted them to form a special, yet official, committee of their own. There is no Senate Special Gold Committee, or Special Paper-Money Committee, or Special Peanut Committee, or a special committee for any of at least 204 other industries which produced goods with a value in 1939 in excess of that of the silver mined in this country in that year.

Whenever any issue has come up on the floor of the Senate that has threatened the interests of the silverites, the chairman or some other member of the committee could be counted upon to rise quickly to his feet and have the matter referred to this Special Committee, where it would be disposed of substantially as the silverites desired. Today this body is at the peak of its power. In June the Senate gave it extensive powers of investigation not only into anything affecting the mining and use of silver but into the mining of gold as well.

Though the membership of the committee may be considered the working leadership of the silver bloc, two members may be tentatively excluded. They are agricultural leaders who, outwardly at least, have shown no active interest in measures for which the silver bloc consistently fights.

The Special Committee is neither duplicated in the House nor does there exist an equally closely knit group of silver managers. Silver matters in the House go to regular standing committees.

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Again qualifying the label of leadership in the silver bloc, it cannot be assumed that all silver-bloc members are willing to put silver interests ahead of the interests of the nation in arming and in fighting this war. For example, Sen. Burton K. Wheeler (Montana), at hearings of the Special Silver Committee, on May twenty-eighth, said, “I am speaking only for myself. As far as I am concerned, I feel that if it is necessary to use this (Treasury) silver under these circumstances, in order to conserve other needed war materials, those of us who are interested in silver could not very well take the position that we are not going to permit the use of that silver or of any other material, no matter what it is. If we needed to use the gold that is in the Treasury to carry on the war, I would say to use the gold-or the silver or anything else we have." Senator Murdock (Utah) went only part of the way with Senator Wheeler in these words: "* While I agree with Senator Wheeler, I have no objection, coming from a big silver-producing state, to the utilization of every ounce of silver and every ounce of gold, if necessary, in nonconsumptive uses for winning of the war."

* *

Although the Murdock position seems to represent about the limit of the cooperation of most of those who have expressed themselves clearly on this matter, it may well be that despite the silverites' record in statesmanship where silver is involved, there are others besides Wheeler who will rise above their special interests in "doing something for silver" while this country is at war. Thus far, however, they remain unknown.

Sources of the silver bloc's powers as they are exercised today are revealed in, and derived principally from, three silver laws and one silver-and-gold law which the silverites and others have been able to write into our statutes, beginning in 1933.

The Thomas amendment

The first of these silver laws is the so-called Thomas Inflation Amendment of May 12, 1933-named after Sen. Elmer Thomas of Oklahoma, and tacked on to the Agricultural Adjustment Act of that date as Title III. Under this law, in brief, the President could fix any ratio he desired between silver and gold, provide for the free coinage of silver, institute bimetallism, and reduce the weight of the silver dollar to any extent he might find desirable. He was supposed, by the silverites, to be free to fix such prices as he pleased for both domestic and foreign silver.

Not until December 21, 1933, did the President issue a proclamation which fixed the Treasury's price 64.64 cents per ounce for domestic silver. This price, changed from time to time thereafter, provided a subsidy to the silver-mine owners of approximately thirty cents an ounce above the world price. Although the Government's profit in seigniorage amounted to 64.65 cents per ounce under this arrangement since an ounce of silver coins up into $1.2929-its profit would have been ninety-four cents per ounce had it bought the silver at the market, or world, price of thirty-five cents, then existing.

The second act is a silver-and-gold law, known as the Gold Reserve Act of January 30, 1934. Although this law was devoted chiefly to gold, it amended certain features of the Thomas Inflation Amendment of May twelfth with respect to silver. It made legal the President's silver proclamation of December 21, 1933, the legality of which had been questioned. It authorized the President to pay a different price for foreign and domestic silver, and specified that the President could reduce the weight of silver coins in the same percentage that he might reduce the weight of the gold dollar which reduction in this law was fixed at 40 to 50 percent of the then-existing gold dollar.

Although the President on the next day January thirty-first reduced the weight of the gold dollar by 41 percent thus raising the gold-dollar price of an ounce of fine gold from $20.67 to $35.00 a rise of 69 percent he has not thus far lowered the weight of our silver coins. This is a change which many silverites, ardently desire because it would raise the silver-dollar or nominal value of an ounce of silver.

The Silver Purchase Act

The third and very important silver law is the Silver Purchase Act of June 19, 1934. It directed the Secretary of the Treasury to purchase silver, at home or abroad, until our stock of monetary silver equaled one-fourth the value of our stock of monetary silver and gold, or until the market price of silver rose to $1.2929 per fine ounce. Not until the one or the other of these conditions is fulfilled is the Secretary of the Treasury authorized to sell any silver purchased under this act.

It is the provisions of this law that have forced the secretary to hoard a large proportion of the Treasury's accumulation of silver and at the same time prevent him from selling the Treasury silver to industry, since the price of silver has not risen to $1.2929 per ounce and the quantity accumulated has not reached the value of one-fourth our monetary stocks of gold and silver, chiefly because of our huge accumulation of gold.

Under this law the Secretary of the Treasury was authorized to fix the price of silver at any point he might choose, up to $1.2929 per fine ounce. In short, he could, up to this limit, subsidize the silver mines as he saw fit.

The Silver Purchase Act of 1934 has been used by the Secretary of the Treasury as authority for fixing Treasury prices of foreign silver which the secretary has purchased. Prices of domestically produced silver were fixed by presidential proclamations until July 6, 1939, under authority which the President claimed was vested in him by the Act of May 12, 1933, "and other legislation designated for national recovery." In general, foreign prices have been much below domestic prices. It is against these world prices that the subsidy to our domestic producers is measured.

The fourth silver law is the domestic Silver Purchase Act of July 6, 1939. By its terms Congress itself, rather than the President, fixes the silver subsidy. This law directed the Treasury to receive all domestically produced silver at 71.11 cents per fine ounce, dating from July 1, 1939.

It is with the powers granted by these four laws that the congressional silver bloc is able to tie the hands of the Secretary of the Treasury so that he cannot sell Treasury silver to industry, war or civilian, when and where it is badly needed. Despite the sorry contributions which some of our self-serving pressure groups have made to the history of our Government, many leading monetary economists and others have insisted that no more regrettable chapter exists than the one contributed by the silverites. The history of their activities, even in peacetime and especially during the last decade, has frequently been called "disgraceful" by thoughtful and informed people. It is a matter of record that several leading silverites and their friends speculated in silver during 1933–1934. On April 24, 1934, Secretary Morgenthau published a partial list of speculators as of January 31, 1934, and suggested that if the Senate wished to know more about the matter, it should make its own investigation. The Senate has never done anything further about this episode.

In the furtherance of their program, from 1933 to date, the silverites have shown themselves quite confident of their authority and have operated without experiencing any great restraints. An illustration of their sureness is revealed in the statement made by Sen. Elmer Thomas while serving as chairman at the hearings held by the Senate Special Silver Committee on May 5, 1942. He said, "I might suggest that under this Thomas Inflation Law we now have vast power over silver. The President is authorized to do practically anything he sees fit with silver, so far as money is concerned."

The arguments which the silverites have used in public to support their plans have, in the opinion of those competent critics who have fought them-chiefly monetary economists-been in the main fallacious. Some of their contentions have been called grotesque, demagogic, and downright wicked. Critics have found it difficult to determine what proportion of such arguments has been due to ignorance and what proportion to sheer desire of the silverites to get what they wanted.

A Chinese "red herring"

As examples and as a part of their program of "saving the people" by raising the price of silver, they insisted, with apparent seriousness, that a rise in the price of silver would aid China, whereas the fact is that it forced China off the silver standard and onto an inconvertible paper currency-a "managed" paper currency-which is exacting terrible penalties from her in the form of fantastically high prices for commodities and services at the very time that she is fighting for her life against Japan.

The silverites claimed that their program would penalize Japan, but the fact is that it was Japan and Japanese imperialism in the Orient that gained from the rise in the world price of silver, forced by our silverites. Japan made large profits by smuggling silver out of China and selling it to the United States Treasury through London.

The silverites claimed that their program would benefit Mexico, whereas the fact is that it plunged our southern neighbor into a chaotic monetary and economic situation. By April 1935 Mexico was forced to close her banks so that

her government could get control of the situation. Later in 1935, and again in 1936, Mexico was subjected to further severe shocks resulting from the fluctuations in silver prices caused by the programs of our silver manipulators.

The silver miners contend that many of their mines would close if they were deprived of the subsidy. This is answered by the fact that nearly 69 percent of our domestic silver output is a byproduct of other mining which is steadily increasing under war demands. Furthermore, the chief source of our supply of silver since 1934 has been foreign, largely Mexican. If the pure, or primary, silver mines should be compelled to close because of lack of subsidy or priority rulings on mining machinery, the harm done, aside from regrettable but small unemployment, would be limited to a small fraction of silver production. And it would be offset by the freeing of mining machinery now badly needed in other places. If the national welfare required that some primary silver mines had to be kept going by subsidy and were vital enough to warrant providing necessary machinery, these mines, and these alone, could be directly subsidized, at least during this war.

The common argument of the silver-subsidy advocates-that as the Government pays a subsidy to silver mines it also makes a profit in seigniorage is hardly worth considering. If profit for the Government were a consideration, the Government could gain more and more profit by issuing cheaper and cheaper money until it made practically 100 percent on inconvertible paper money. Finally, the output of subsidized silver mines has not helped industry appreciably, since the silver goes into a sterile hoard.

Critics of the silverites know that back in April of this year the Board of Economic Warfare took control of our silver exports to prevent our silver from falling into the hands of Hitler's agents, who know how to make good use of it for war purposes. Now they see our congressional silver bloc refusing to relinquish our hoarded silver for consumption in our war industries so that our armed forces can the more quickly and effectively lick Hitler. Beautiful silver trophies won by hard work are being sacrificed by patriotic citizens, but unworked bullion lying at West Point is being withheld by the silver bloc.

An editorial writer in The New York Times, on August fourth, stated the essence of the matter, insofar as prevention of the use of Treasury silver for consumptive purposes is concerned, when he said: "So we arrive at a situation in which the same Government that urges a patriotic public not to hoard sugar, not to hoard rubber, not to hoard gasoline, not to hoard useful goods of any kind, itself hoards a metal which is needed for planes and shells and tanks and ships. It is a fantastic situation. It could exist only in a bloc-dominated Capitol." Another editorial writer--in the New York Herald-Tribune, on August fourth— called silver "the slacker metal."

All that need be done to solve our silver problem is for Congress to repeal the silver-purchase laws, end the silver subsidy, and release all Treasury silver, except, perhaps, existing silver dollars and fractional silver coins, at natural market or average prices to industry-war industries first, civilian second.

Such a step, it is contended, would have the double advantage, apart from ending the subsidy, of placing silver where it is most needed and, at the same time, of improving our currency structure by giving it a better quality and by putting a curb on its increase, from this source at least, at a time when the currency is expanding too rapidly.

If, with the repeal of the silver-purchase laws, silver certificates were replaced by Federal reserve notes, we would have a paper money secured by not less than 40 percent in gold certificates plus other assets, instead of a paper money secured by a metal which, during the last three years, has had a value in the world markets of approximately only twenty-seven cents per silver dollar. Furthermore, such a plan would spare this country the evils involved in the defective brand of silver certificates proposed in May by the Senate Special Silver Committee, which could not be converted even indirectly, much less directly, into silver.

Washington Tug-of-War'

At the time these silver laws and policies were proposed, a very large number of leading monetary economists fought them; and since their adoption, these economists have again and again tried to reveal to the public what they insisted was their evil nature and to persuade Congress to repeal them. For example, on April 20, 1942, sixty-five of them issued a public statement in which they urged, again, the repeal of these acts.

Opposition to the silver bloc's tactics has reached into Washington sufficiently to cause certain steps to be taken to offset the rising tide of criticism. On September fourteenth, Senator Green of Rhode Island, introduced a bill providing

for the sale of all Treasury silver except that held against silver certificates. On September seventeenth, Representative Celler of New York, introduced a bill to repeal the Silver Purchase Acts of 1934 and 1939. On the same day Secretary Morgenthau announced that the Treasury had available 5,000,000 ounces of silver in a special category-"silver ordinary"-which would be sold outright at fortyfive cents an ounce to industrial users with high priority ratings upon recommendation of the War Production Board. Back on June eighteenth he had said that this amount could be made available under the Lend-Lease Law to accommodate the demands of certain foreign countries for silver for coinage purposes, but "he desired an expression from Congress before acting." It seems probable that current criticism of the lack of use of Treasury silver has caused the secretary to offer to sell, not merely lease, this silver-and without "an expression from Congress before acting."

On September eighteenth, according to a United Press report, fourteen silver senators met in the office of Senator McCarran and "agreed unanimously to oppose any change in silver legislation and the Green bill in particular.' These senators were joined in their opposition by three members of the War Production Board, two of whom, up to date, have shown every disposition to cooperate with the silver bloc.

If Congress were to take, in behalf of the American people, the steps suggested— that is, the repeal of the silver-purchase laws, and so on—it would bring to an end what our most responsible, capable, and objective leaders in the field of money regard as an unfortunate chapter, already far too long, in American political, economic, and monetary history.

(The following departmental reports were received by the Committee)

Hon. ROBERT F. WAGNER,

NAVY DEPARTMENT,
OFFICE OF THE SECRETARY,
Washington, October 24, 1942.

Chairman of the Committee on Banking and Currency,

United States Senate.

MY DEAR MR. CHAIRMAN: The bill (S. 2768) to authorize the use for war purposes of silver held or owned by the United States was referred to the Navy Department by your committee with request for an opinion as to the merits of the proposed legislation.

The purpose of the bill is to authorize the President, through the Secretary of the Treasury, to sell, lease, or otherwise dispose of any "free silver," that is, uncoined silver owned by the Government which need not be held as security for outstanding silver certificates, for use in connection with the war effort, with a proviso that no silver shall be sold at less than cost or the then market price of silver, whichever is higher.

In an opinion dated April 7, 1942, the Attorney General held that the Secretary of the Treasury was authorized to lease or license the use of "free silver" in place of copper in both Government and privately owned plants for war production. The lease or licensing agreement must provide for return of the silver to the Government. The Attorney General stated that under present conditions the Secretary of the Treasury was not authorized to sell silver acquired under the Silver Purchase Act of 1934.

According to two recent statements of the Secretary of the Treasury (Congressional Record, September 24, 1942, appendix, p. A3669), all of the "free silver" is being lend-leased for use in war plants, where it will release 40,000 tons of copper for war uses. The Secretary of the Treasury also announced that the Treasury is arranging to sell certain "silver ordinary" composed of recovered bullion lost in melting and coinage processes and obtained from certain other sources, as to the sale of which the Silver Purchase Act of 1934 imposed no restrictions. The Navy Department recommends enactment of the bill S. 2768. The Navy Department has been advised by the Bureau of the Budget that there would be no objection to the submission of this recommendation.

Sincerely yours,

FORRESTAL, Acting.