ANY abrupt decline in a commodity price always disguises some special cause in addition to general market or monetary conditions. Silver is now ruling at the lowest level of all time (about 27 cents an ounce at the moment of writing). Obviously, conditions not wholly susceptible of explanation on the grounds of the general fall of prices have been at work.

In regard to most commodities the explanation would be sought in the production-consumption ratio, which is the determinant of price. It is worth while to see what such a search yields when applied to silver. Over the decade since 1921 the average yearly output has been 230 million ounces. The average yearly consumption, however, has been 265 million ounces, actually more than the output. Evidently we shall not find our answer along this route. The fact is, of course, that the large, ever-growing world stock of silver invalidates the production-consumption comparison as an explanation of its price. When wheat is consumed, a vacuum is left to be filled by new production; but the bulk of silver output flows into a vast pool of accumulations. Thus we have the origin of what in trade parlance is called "other supplies," i.e., the entrance into world markets of existing stock. "Other supplies" constitute the outstanding market phenomenon; oversupply, not overproduction, is the trouble. "Other supplies" have been in such vigorous competition with annual production that in the last decade they have exceeded 355 million ounces, a yearly average of 35 million ounces.

Since the use of silver is very ancient nobody can compute the reserve of these "other supplies." They do not come from mines whose potentialities are susceptible of measurement, but from sources whose age-old depths defy statistical research. Nor are actual sales from these sources known in advance. In regard to both volume and time, they have sprung upon the market, with the effect not only of depressing silver but of frightening operators into a persistent pessimism. For instance, though the average annual sale from "other supplies" in the last decade was 35 million ounces, almost twice that amount came on the market every year in the three years ended 1930. Modern price relations, which rest on some degree of future planning, are impossible of maintenance in the face of this unknowable factor in the silver situation.

"Other supplies" are coming out of depositories to compete with output because silver is nowadays treated as a commodity. Formerly silver as well as gold was the measuring rod of commodity value. It had a fixed ratio with gold, not an unfixed price in gold, as in the case of other commodities. In the time of the Pharaohs a gold: silver ratio of 10:1 held almost a religious sanction. Colonne, the French economist, gave the seal of an economic law to 15:1, and in 1896 William Jennings Bryan built the Democratic platform on 16:1, persuading millions of American voters of its virtues. But Bryan's effort marked the end of the struggle to keep silver from being put on the side of the commodities. Left to fend for itself, its "ratio" or price in gold is now 60:1. Progressive demonetization of the metal has built up a surplus of millions of ounces.

The history of the demonetization of silver goes back over a hundred years. It has marched hand in hand with the improvement of living standards. Man wanted a higher unit to express his growing wealth. He also required the minimum of variability in value. In 1816, England, then fast becoming the world's workshop, set the course of monetary policy towards gold monometallism. It enacted into law the single gold standard. Other trading nations, growing more prosperous and feeling the same need for stability, slowly fell into line behind England. Until 1921-30, however, silver sales from surplus stocks had only temporarily adverse effects on silver prices. They were quickly absorbed in the Far East. After digesting the shocks caused by the progressive abandonment of the bimetallic standard, the demand rallied, as for example in the 'nineties, when India closed its mints to free silver coinage and went on a kind of pound sterling exchange standard. Statistics show that India imported almost twice as much silver in the decade before the war as it imported in the previous decade. Post-war reconstruction, however, gave a decided impetus to the century-old movement against monetary silver. It added to the resources of "other supplies" the silver saved from a general debasement of subsidiary silver coinage. This metal rapidly overflowed on to the market.

In 1919 England called in and remelted its silver coinage, reissuing the metal with a silver content reduced to five-tenths instead of nine-tenths. This was not an economy measure per se. England required silver to settle its obligations to India, which, prosperous on war orders, had demanded such a volume of precious metals in settlement that in 1918 England was compelled to arrange for a loan of 200 million ounces of silver from the United States Government reserves. In 1919 and 1920, after wartime control had been removed, silver prices several times soared so high that even in the United States the silver dollar was worth more as silver than as a coin. The same phenomenon in respect of the rupee occurred in India, where the people, always alive to the appreciation of silver in value, began to present their paper notes to the banks and ask for silver rupees, which were promptly stored or melted down. To meet the growing demand in India, England shipped part of the silver saved from its silver coinages.

Post-war governments in Europe found that the British method afforded an excellent means of economizing on governmental expenditure. They ignored silver in their calculations for reconstruction, either keeping silver out of circulation altogether or debasing new issues. Conspicuous among these nations was France, which withdrew all of its silver coinage, issuing paper, brass, nickel and copper instead. In their anxiety to copy England and France, certain other states, notably Austria, went too far and found that token currency was not acceptable. After their experience with paper currency which could not be converted into anything substantial, the people demanded the circulation of hard money of some intrinsic worth, so that they might be protected in the event of a return to astronomical inflation. Since they were no longer living under the police system of war-time, they got it, and silver started to return to the European money system. Though fineness was reduced, the additional demand, as well as general reconstruction, manifested itself in price; by 1925 silver had improved to 69.07 cents from the 1921 post-deflation figure of 62.66 cents an ounce (compared with $1.38 at one time in 1919).

The debasement of silver coinage in Europe nevertheless constituted a severe blow to the long-term prospects of silver. It enabled governments to dispense with the pre-war statutory requirements for subsidiary currency. It also made governments sellers, where formerly they had been buyers. In 1928 and 1929 England and France disposed of substantial quantities of their saved silver, though France has since declared its intention to keep the remainder of its reserve intact, and to reissue silver coinage next year, albeit with a low fineness.

In the meantime the idea of a gold standard began to spread to the Far East, in spite of the low living standards prevailing there. The Indian Government in 1925 appointed a Royal Commission on Indian Currency and Finance, the fifth in its currency history, to consider a plan with a twofold design. Post-war losses incurred by the government as a result of having to provide the people with silver rupees worth more than their coinage value had persuaded the government that the only remedy was to introduce an effective gold standard and dethrone the silver coin from its position as unlimited legal tender. Freed of this obligation, the government could then eliminate the surplus silver from its currency reserve. This was the first proposal submitted for the Commission's consideration. The second is worth quoting in full:

To cure the uneconomic habit of the people of holding the precious metals as a store of value, by assuring them, through the instrumentality of a gold currency, that the same measure which they mete out, in gold value, by way of investment of deposit with a bank, will be meted to them again, in gold value.

These objectives aroused the utmost concern in the silver industry of the United States. Only about 25 percent of the world's silver output is produced in United States territory, but American capital has large or controlling interests in many of the mines in Mexico, Canada and Peru. Possibly, indeed, American capital controls as much as 70 percent of world output. The objects of the Indian Government threatened to cripple the buying power of silver's best customer, India. At that time India was taking up to 40 percent of the world supply, both on government account for coinage and on private account for hoards. There was a saying in the industry, "A good monsoon, good silver," meaning that profitable farming conditions in India would boost silver prices by enabling the Indian people to invest their enhanced returns in silver. Yet government purchases were little less important to the industry. For the first sixteen years of the century Indian governmental transactions were said to be the main determinant of price. Finally, for centuries India had been a veritable Danaïdes jar for the world's silver mines, with the result that the silver industry had acquired a fixed fear that any blow to Indian confidence in silver, such as might follow an abrupt decline in price, would be likely to result in the disgorging of this tremendous hoard of buried rupees and ornaments, thus demoralizing the market. Disquiet was not allayed by the knowledge that at that time the plan of the government, in so far as it related to the attainment of an independent gold standard, found general support in India, for reasons of national pride.

American witnesses, mainly bankers such as the late Benjamin Strong, placed the considerations of American interest at some length before the Royal Commission. When the Report came out it was found to modify the original plan, but none the less, in the opinion of the American industry, it presaged serious consequences for silver. These fears persisted in spite of English assurances that they would prove as baseless as the apprehensions of the 'nineties.

India was duly put on a gold bullion standard. In other words, currency was convertible into gold, though only into bars of gold, to obtain which it was necessary to present not less than $8,000 of currency. The Commission gave its imprimatur to the proposed abolition of the legal right to convert new notes into silver rupees, though the recommendation was qualified by the proviso that in practice convertibility should be maintained. The gold reserve needed to support the new gold standard was much more than the Indian treasury possessed, and it was proposed to obtain it by selling excess silver held in the reserve against paper currency. More silver was expected to flow back to the Treasury out of the so-called "redundant rupees" acquired by the Indian population during the prosperous war and post-war years. As the inevitable consequences of these measures, provision was made for the suspension of the coinage of silver for some time to come. Obviously the intention was to discourage hoarding and to promote in India the "pocket change" attitude toward silver obtaining in the west.

World silver prices, which had held up for four years, responded to the Indian report by sinking 10 percent in 1926. Today the reaction seems to have been due to intelligent anticipation of coming troubles. If Indian governmental purchases alone had determined price in 1900-1916, surely Indian governmental sales would depress it. The Indian Government fulfilled expectations by selling (on a modest estimate) 75 million ounces in 1926-30. In 1928 India, hitherto the chief absorber of silver since records began to be kept, was passed by China, the last great stronghold of the silver standard.

Another consequence of the action of the Indian Government was to gain advocates for gold among other peoples historically wedded to silver. A currency example is contagious, and it was therefore not surprising when last year French Indo-China renounced silver and emptied its coffers into the world market. The Indian Government, taking alarm at the possibilities of this invasion, in March 1930 set the final seal on its disapproval of world silver by imposing an import duty. In his last budget speech, Sir George Schuster, Finance Member of the Indian Government, explained: "There is another important new factor in the situation, in that the government, owing to their possession of surplus stocks of silver and the erection of a new refinery at Bombay, have got into the position of being themselves important producers of silver. Our proposal, therefore, has the new incidental advantage of providing Government with a protected market for their own produce." But the act did not accomplish its purpose of "protecting" the price of Indian government silver sold inside of India. The import duty established a differential between home and world prices of about 9 cents an ounce. Yet, partly in consequence of this act, the world price started to toboggan downward in May, and, dropping much lower than 9 cents, of course dragged the Indian price along with it. Today the duty is meaningless in view of ruling prices at 27 cents compared with around 45 cents in February 1930.

Figures which illustrate the shift in silver distribution in the east as the result of these developments are as follows:[i]

 

  World Output China, including coinage of India
    Chinese Mints  
1924 239,100,000 oz. 41,700,000 oz. 108,200,000 oz.
1925 245,100,000    59,400,000    106,700,000   
1926 253,600,000    73,900,000    91,600,000   
1927 251,200,000    85,000,000    90,000,000   
1928 257,200,000    124,000,000    89,000,000   
1929 260,900,000    136,700,000    81,800,000   
1930 243,700,000    123,000,000    94,500,000   

What will China do? It is only a half-truth to describe China as being on a silver standard basis. Internally, silver is simply the medium and the standard of value for the upper stratum of society. As one goes down the scale of social life, one finds in vogue many media besides silver, all independently managed standards -- copper, "cash" (a minutely valued coin composed of an alloy, chiefly brass and bronze), inconvertible paper, and outright barter. Perhaps, if one may make any generalization about China, that country may be described as on a commodity basis of exchange, for even in those areas which have progressed out of barter the metals are used almost at commodity values. Sometimes, indeed, as in India in 1919, these metals may have an intrinsic worth beyond their face value. For instance, in 1919, when the metals rose so high and so abruptly in price, the "cash" of China attained to this premium, and a lively Japanese trade sprang up in imported "cash" from China. In Japan the coins were melted down and the metal returned to China for recoinage at the mints!

Thus the mass of the Chinese people are neither aware of the convulsions in the silver world nor very much affected by the world depression. They live and work too far from the treaty ports to be dependent on gold-priced goods, so expensive in China nowadays with the drop in silver (or, as it is regarded from China, the rise in gold). Even the few foreign commodities which percolate down to the smallest villages, such as kerosene and cigarettes, may not show any marked change in price, as the foreign merchants operating in China, long used to changes in the price of silver, generally vary the content of the product and leave the unit price undisturbed.

China as a people may be indifferent, but the chief currency authority, the Government at Nanking, cannot be unconcerned. The government must take stock of China's new position as the main support of the silver market, with takings amounting to the equivalent of half of the world output.

In addition to being the chief outlet of production, China is the dumping ground for "other supplies," i.e. government sales. For reasons of which dumping is one, Shanghai holds three times the stocks which it held in 1921. China has been so hospitable to all this cheap loose silver that a group of United States Senators now propose to expedite delivery beyond the limits of its consuming ability. They suggest that China might take another hundred million or so ounces by way of a loan, as England did in 1918. Such a prospect does not seem likely to fall on receptive ears in China at a time when its trouble is to maintain a free market which will not degenerate into a dump. Last year the Nanking Government, following India's example, put an embargo on the importation of foreign silver coin, and actually considered the imposition of an import duty on silver, which would have put the country on an inconvertible silver standard. It has also partly safeguarded its foreign debts not in default by fixing a rate of exchange for the collection of the maritime customs, a source of revenue which, formerly collected in variable silver, is used to meet most of China's foreign obligations, which are mainly payable in gold currencies.

So much for the internal function of silver in China. Silver is also the Chinese medium of exchange in international trade; that is, its foreign exchanges are at the mercy primarily of the equation between fixed gold and unfixed silver, or the price of silver in gold. Naturally the present low gold prices for silver conceal a bounty on Chinese silver-priced exports. Foreigners, having to give less in their own currencies for a given quantity of goods, will find China a cheap buying market. This phase of the situation has already excited those who see the Yellow Peril behind every economic bush. However, any great augmentation of exports seems dubious. For one thing, neither the economic nor the political organization of China is such as to allow it to take much advantage of such an export bonus. Again, it does not seem likely that commercially China wants a bonus on these terms. The penalty on the other side, namely the high prices which it has to pay with its silver for foreign or gold-priced goods, is too great. Just as foreigners have to supply less of their currencies to buy Chinese goods, so the Chinese have to supply more of their currencies or goods to buy foreign goods.

Modern China is interested in imports as well as exports. This is not the China of the Emperor Chien Lung, who wrote to George III that there was "no need to import the manufactures of outside barbarians in exchange for our own produce." There is today a will to import at least capital goods such as machinery in order to build up modern industries. A will to import may be observed in the new tariff which has reduced the duties on such imports in the effort to overcome the high levels of gold-priced goods. Vain, however, has been the hope of trying to offset the effects of the accelerating silver decline. So if China cannot provide the cheap goods or enough silver, it will of course reduce its foreign commodity takings; in any case, low silver prices (conversely, high gold prices) will encourage the upbuilding of Chinese factories to supply the demand which has hitherto been dependent upon foreign supplies.

The answer may be that China will abandon the silver standard. The proposal has been talked about since pre-republican days, but no progress has been made, as currency reform demands what China has hitherto lacked, namely, a strong central authority. Still, China has always liked to inquire into the theoretical possibilities of bringing order out of its monetary chaos. The invitation to Dr. E. W. Kemmerer to render a currency report resulted from this feeling. Dr. Kemmerer's report proposed that a gold exchange standard should be ushered in by stages. It has been regarded with so much skepticism on the score of practicability that its influence upon the silver market has probably been negligible. Perhaps the only item in the recommendations calling for comment is the one which provides for the sale of many millions of ounces of silver in order to build up a gold reserve. This would be accomplished out of the seigniorage saved by issuing debased token coins instead of the pure and almost pure silver which at present circulates either in the form of sycee (bullion shaped like shoes) or of coins. The trouble with this recommendation is that China, in the same selling rôle as India and for the same purpose, would probably drive down the price of silver to further low levels. At present it would be a reductio ad absurdum; the silver-deserting countries would be taking in each other's silver.

Of immediate moment is the reaction in India to present low silver prices. An Anglo-Indian lawyer residing up-country once gave the writer some indication of the changing monetary habits of the Indian population when he said that he was now paid in notes whereas in his first few years in India he was paid in rupees dug out of hoards in the ground. The rupee has a face value of 37 cents as compared with an intrinsic value of less than 10 cents. In the United States the simultaneous decline in the bullion value of a silver dollar to about 25 cents has not affected our esteem for the silver dollar, because that esteem is based on its recognition as token coinage and nothing more. We are so confident of our ability to command a gold dollar's worth of commodities with our silver dollar that we do not perceive any significance in the decline in its intrinsic worth. A different psychology would probably prevail if we used dollars for savings instead of to buy small articles. The Indian, as was shown in his early postwar behavior, is fully conscious of the increasing devaluation of the rupee, in spite of the fact that by the operations of the gold standard he is able to obtain goods of a gold value of 37 cents for it. He is showing an increasing indisposition to store it. Undoubtedly this is one reason for the flow of rupees back to the government treasury. Coined rupees have been coming in so fast that, in spite of government silver sales totalling 75 million ounces (say, 250,000,000 silver rupees), the Indian currency reserves on January 15, 1931, far from being diminished, stood at 1,202,000,000 silver rupees, as compared with 833,000,000 silver rupees on January 1, 1926.

Yet an Indian flight from silver bullion as distinct from silver rupees would require a vast change in psychology, and hence is extremely problematical. Silver bullion is stored away in bars or ornaments. In some parts of the country a widow is not allowed to inherit more property than she can hang around her person; naturally such property takes the form of ornaments composed of the precious metals. Silver has the great virtue of relative indestructibility; paper currency buried in the damp ground or secreted in leaky rafters could not withstand the ravages of time. Nor is the development of banking or investment habits likely to make the headway that was prophesied for it, particularly in view of the uncertainty of the country's political future.

Despite all this, the arrival of historic low prices for silver has awakened serious fears lest Indians should lose confidence in the metal. Unlike China, where gold is not used as a standard and seldom as a store, in India the relation between gold and silver is widely appreciated. In its first interim report on gold, the Gold Delegation of the Financial Committee of the League of Nations makes the guarded comment that, "It is quite possible that the recent decline in the price of silver will lead to increased purchases of gold." There is no way of knowing definitely about such a subject, but no such movement as yet seems to be recorded, and most authorities consider the converse to be true, namely, that low silver prices, when they are considered bottom prices, are apt to encourage silver imports at the expense of gold imports. However, just as American women would cease to esteem platinum if platinum lost most of its present value, so the Indian esteem for silver would vanish if the bottom dropped out of the silver market. After all, Indian hoards are a store of value, in the sense of being private treasuries, as well as a store of sentiment.

It is sometimes asked why the silver industry does not seek equilibrium and adjust itself to its new competitor. No measures could be imagined that would offset the waywardness of such competition as "other supplies" have provided in the last two or three years. Nevertheless, the attempt to widen industrial demand for silver or limit output in order to help prices has repeatedly been urged on the industry.

There are those who assert that enough activity has not been devoted to the promotion of uses for silver apart from its uses as a precious metal. And it may well be that the historical regard for silver as a precious metal has not encouraged enough research into its possibilities as an industrial commodity. Only 15 percent of supplies is now absorbed by industry; but present conditions may provoke further research, especially into possible uses at different price levels. As yet the only hope of a larger industrial outlet lies in the effort now being made to put non-tarnishable silverware on the market.

Limitation of output is difficult in the case of silver because 60 percent of the product is won from mines which also yield lead, zinc and copper. Output was reduced last year by 20 percent, but this was chiefly due to curtailment in the output of the other metals, though there was some degree of lessened activity at the "straight" silver mines. This year a further reduction is in sight. Peru, for instance, which normally furnishes 10 percent of the world's output, will probably place on the market about half of its usual quantity.

Another problem attaches to curtailment of output. Silver holds an important position in the budgets of Mexico and Peru. Mexico, responsible for 40 percent of output, is to a great extent dependent for sustenance on world takings of its mineral wealth, and silver figures largely in this revenue. Already an arrangement has been made to suspend transfers of payments on the Mexican foreign debts. Peru wants an outright moratorium on its obligations abroad. A major reason for the development in both cases was the silver crisis. Moreover, Mexico will not readily allow the silver mines to be closed down. Unremunerative operation has been forced on several owners by a provision in Mexican legislation requiring an employer to obtain official permission before discharging labor. One instance is recorded where, even after permission had been obtained, and the mine had officially suspended operations, the miners continued at work, finding a market for the stolen metal in Mexico City.

Drastic restriction of the silver output, it is obvious, would create a widening circle of complications not limited to the silver industry or to the impoverishment of Mexico and Peru.

Enough has been said to show that in potentialities "other supplies" are of far more significance than output. They are a permanent feature of the situation because of the fear that in the long run silver may be dethroned as a monetary metal. To try to stem the tide would be like the effort of the lady of fiction who tried to sweep back the ocean. That the bimetallic solution of the silver problem has not gained more advocates in the face of fears of a gold shortage is a witness to the manner in which men are looking to managing existing gold supplies more efficiently rather than to securing more metal in stabilizing currency supplies. The nations are beginning to dispense with gold as well as silver, massing the yellow metal in central banks, which are rearing inverted pyramids of credit and paper currency upon it. So far have we progressed from the days when we insisted on "honest metal" as a safeguard against dishonest government that the movement to reinstate more silver into circulation seems foredoomed to failure. We are moving toward the elimination of international, let alone the national, handling of metal. Impressed by the cumbrousness of shipping gold in settlement of international balances, central bankers are beginning to envisage the prospect of a world clearing house system.

Is there any reason, however, for the west to force the process on the east, where such different conditions prevail? The east possesses neither the living standards nor the tempo of life which has encouraged the elimination of metal by westerners in transactions among themselves. Nor do we find in the Orient the confidence in government which is a desideratum in dispensing with "conspicuously visible" money. Even in India the British Raj is preparing progressively to Indianize the institutions of government, and no one can foretell either the outcome of these reforms or their consequences on the currency habit of the Indian population. Will they live to regret the introduction of paper, as many areas in China regret it?

Be that as it may, if the writing on the wall reads that the cheapening of silver is inevitable, there are reasons both of justice in India and of western self-interest for making the process gradual.

India has probably four times the silver hoards held by China. Strictly speaking they are not "hoards," a word which connotes miserliness, but savings, and should be regarded in the same category as the money on deposit with the savings banks of the United States. An average of the estimates of recognized authorities would put these private stores of the Indian population at four billion ounces, or well over half of the world stock. In 1926 their value in terms of gold was $2,750,000,000. Today they would be valued at $1,075,000,000. Without using figures, J. F. Darling has applied the word "filched" to this reduction in value. If a director of one of the "Big Five" banks in London uses such a word, what word is the Indian ryot using? One can well imagine, especially when, as the result of the world depression, he is forced to pawn or sell his silver. Here arises the question of justice. In certain circumstances the protection of the purchasing power of silver may be none the less vital to the Indian than the protection of the purchasing power of gold is to the west.

The raising of the point of justice has not been limited to unofficial British commentators. It has the warrant of the Royal Commission of 1925, which stated:

The people of India have from time immemorial placed their trust in silver as the medium of exchange and as their store of value. They are deeply interested in the value of silver bullion, and it is contrary to their interests to depreciate it. The present proposals [i.e. those of the Indian Government] would inflict heavy losses on the poorer classes, who have put their savings into silver ornaments, and who would find their stores of value depreciated by perhaps 50 percent by the action of government. It might well happen that when it was seen that the price of silver was doomed to fall, there would be a tendency to change over from silver to gold in all parts of the world.

We have already seen how the prophecy came out more than true, even though the laws as enacted only partly fulfilled the original proposals. The price of silver in 1925 was 69 cents; today it is around 27 cents, a drop of 60 (not 50) percent. And the Indian Government is known to have sold silver when silver was at record low prices. By conducting its operations regardless of price, thus further depressing the market, the government must accept much of the responsibility for the reduction in the value of Indian hoards. Undoubtedly much of the explanation is traceable to the need under which the Indian Government has labored of parting with silver for the purpose of supporting foreign exchange during the business depression. But that is another story.

Hence any proposal to remedy the silver situation must first take account of the Indian Government's attitude. Through Sir George Schuster, in his last Budget speech, it has now expressed its willingness to consider joint action with a view to the regulation of sales by all world sellers. In actual sales the Indian Government has probably not sold more silver in the last decade than the British Government. All governments holding reserves of metal from debased coinages would therefore have to join India in making coöperation effective.

There is no doubt, as will be seen from a reference to the statistics already given, that world demand furnishes an out-let for both the debased and demonetized silver. What troubles the market, and makes operators bearish, is the uncertainty, both as regards time and volume, of government selling. On this point the 1930 circular of the British firm of silver brokers, Sharps and Wilkins, writing of sales by the Indian Government, states: "It was not so much the actual sales that were responsible for the fall, as the uncertainty of their next move." That this is the outstanding characteristic of the present-day silver situation seems to be the consensus of expert opinion. What is wanted, then, is regulation of the time and flow of government selling. At the same time a system of regulated government buying to meet coinage needs might be worked out. Hitherto coinage requirements have been filled more or less haphazardly. Francis H. Brownell, chairman of the board of the American Smelting and Refining Company, has outlined a plan for "joint action" (as mentioned by Sir George Schuster) to be undertaken along some such lines. Demand for silver is highly irregular, and if the governments agreed to time their calls for coinage purposes during slack buying seasons in the east, and at the same time came to some understanding over their silver selling policy, the darkest cloud would be lifted off the silver market, and the atmosphere cleared.

Self-interest as an urge to the western world to control "other supplies" is based on two considerations: (a) the need for conserving gold; (b) the need for markets for western goods.

Studies of the gold problem have brought out the "well-grounded fear" that our gold mines will soon be unable to add the requisite 2 or 3 percent of new gold to the existing monetary stock of gold needed for maintaining stable prices.[ii] Such a situation admittedly calls for better management but it also requires the conservation of existing supplies. The problem of economy in the use of gold, particularly non-monetary gold, is the subject of discussion at every meeting of central bankers. Bankers have hitherto been exercised over the imponderable of the Indian demand for hoards as well as for money reserves. At various times India has been called a "sink" and a "sponge." It has been absorbing a fifth of the annual world output, mainly for hoards, which of course do not subserve world trade. Yet the Indian Government is pursuing a policy, the consequences of which must be to encourage India to acquire gold. On the authority of the League Gold Delegation, low silver prices fostered by that policy might possibly turn the preference for hoarding purposes from silver to gold.

A marked decline in the price of silver depletes the ability of both the silver users of China and the silver savers of India to buy western goods at present gold values. We have seen that in China there exists a new desire to import foreign goods. But the drop in silver is depriving more and more Chinese of the ability to pay for the very goods which the enterprise of foreign merchants has introduced during the past century. Reports from Shanghai state that Chinese (or silver) prices on wool, for example, have skyrocketed so high that thousands of Chinese, long used to western-style clothes, are going back to Chinese silks.

Few commentators on the silver situation neglect to observe that permanent recovery is dependent in no small measure on an increase in China's foreign trade. Some, indeed, go so far as to say that the decline in that trade last year was the primary cause of low silver prices. This is putting the cart before the horse, as the figures show that the commerce of the United States with China declined in about the same proportion as the total trade of the United States, while silver imports by China, though slightly reduced from the record year of 1929, were 40 million ounces above the six-year average. Undoubtedly few things would do so much not only for silver but for the excess manufacturing capacity of the western world as the development of China. Wu Ting-fang, when Minister to Washington, once said that if his people could be persuaded to add half an inch to their shirt-tails, all the textile mills in the world would be kept busy supplying the extra demand. The remark, though only facetious, does give some idea of the potentialities residing in such a huge population, should its living standards be raised to somewhere near western levels. But as long as China remains attached to a silver standard, the rapid decline in silver must be checked if we are to retain the relatively small trade which we have secured, let alone obtain the increment which belongs to the future.

As a commodity, silver has clearly been affected by the worldwide decline in all commodity prices. Yet silver has declined far more than other commodities and in that disparity may be sought the justification for regarding silver as a special problem. For reasons above stated, the decline of silver has perhaps caused some other commodities to fall in price more than they otherwise would have done. There is no disagreement among the various sections of opinion interested in silver as to the advisability of restoring silver to something of its former prestige. The most determined Anglo-Indian advocate of the gold standard for India, the most isolated silver miner of Nevada, and the most rampant Chinese nationalist will all welcome for their own particular purposes the restoration of confidence in silver. The question is thus whittled down to one of how shall this restoration of confidence be brought about. India apparently feels that it should not be asked to stop selling unless the American producing interests curtail their output. The American producers are likely to argue that they cannot curtail production of silver without simultaneously (and with far reaching complications) curtailing the production of other metals, principally gold, lead, copper, and zinc, of which the three latter are already on a reduced basis of production. The producers will probably also stress the point that the equilibrium of silver was upset not by an abnormal increase in production but by the action of governments and that equilibrium consequently should be restored by those same governments. China, relatively impotent in the matter, is likely, if driven to the wall, to resort to extreme measures which, while they may not help China very much, will certainly harm western trade. The problem of reconciling these conflicting interests in a harmonious program would not seem insuperable when the object is common to all parties.

[i]Taken from the yearly tables compiled by Handy and Harmon, New York.

[ii]E. F. Gay: "The Gold Problem," FOREIGN AFFAIRS, January 1931.

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