The Silver Agreement

THE four-year agreement negotiated at the World Monetary and Economic Conference by the eight nations which are the largest holders or producers of silver is frequently cited as the one real definite achievement of the parley. The inclusion of the silver question in the conference agenda was due largely to American influence, and the designation of Senator Pittman of Nevada, leader of the silver bloc in Congress, as a member of the American delegation was an assurance that this problem would not be ignored. According to newspaper reports, some of the American delegates regard the silver agreement of July 22 as in itself an adequate justification for the holding of the conference.

The agreement, signed by five silver-producing nations -- Australia, Canada, Mexico, Peru, and the United States -- and by three silver-holding nations -- China, India, and Spain -- was designed to increase the price of silver by limiting sales of the metal in the world market and by providing for the yearly purchase of stipulated amounts by governments of the silver producing countries. It stipulates that the five silver-producing countries shall purchase or withdraw from the market 35,000,000 ounces of silver annually for four years. Of this amount 24,421,410 ounces has been apportioned to the United States, 7,159,108 ounces to Mexico, 1,671,802 ounces to Canada, 1,095,325 ounces to Peru, and 652,355 ounces to Australia. The United States would thus take 69.78 percent of the total; Mexico, 20.45 percent; Canada, 4.78 percent; Peru, 3.13 percent, and Australia, 1.86 percent.

No official explanation has yet been given concerning the basis of this allotment. Apparently, there was a considerable amount of bartering before the figures were put in their final form. Unofficially, it is reported that American influence was an important factor in bringing the negotiations to a successful conclusion. Probably the American wish "to do something for silver" induced the American representatives to agree that the government of the United States should absorb over two-thirds of the metal to be withdrawn yearly from the market. This allotment was far out of line with American domestic production, which in recent years has amounted to less than one-fourth of the world's output. On the other hand, Mexico, producing over 41 percent of the world output, agreed to absorb only a little more than 20 percent of the annual government purchases. Inasmuch as American capital controls about two-thirds of the total production of silver, it may seem fair that the American Government should agree to absorb about 70 percent of the total purchases. The ownership of mines, however, does not seem to have been the basis of the allotment, since Mexico, controlling through ownership only 1.5 percent of the world output, was allotted over 20 percent of the total purchases, while Canada, which is scheduled to take not quite 5 percent of the total allotment, is known to control considerably more than that proportion of the total production.

The chief beneficiary of the agreement, apparently, will be the British Empire. The two Empire silver-producers, Canada and Australia, have agreed to absorb less than 7 percent of the 35,000,000 ounces, although British capital controls nearly 22 percent of the world output. The only apparent concession by any member of the British Empire was the commitment by the government of India not to sell more than 35,000,000 ounces of silver a year during the life of the agreement. During the past six years India has at times been a heavy seller, but in only two years did the sales amount to as much as 35,000,000 ounces. India's agreement, therefore, was a concession only in so far as the government of that country consented not to increase its sales beyond the previous maximum. The Spanish and the Chinese Governments have not been sellers in the past. Thus Spain's agreement to limit sales to 5,000,000 ounces a year and China's agreement not to sell any demonetized silver for four years were concessions in name only. The government of India, meanwhile, retains its right to continue sales to governments desiring to pay their American war debts with silver.

The arrangement thus confers substantial advantages on the British Empire. In the first place, it provides a new market for absorbing annually 35,000,000 ounces of silver. In the second place, it leaves the British Government free to purchase at private sale silver owned by the Indian Government for payment on the American war debt. In making a payment of $10,000,000 on June 15, 1933, Britain purchased 20,000,000 ounces of silver in India at a cost of a little more than $7,000,000. Under the Agricultural Adjustment Act of May 12, 1933, the President was authorized to receive silver in payment of these debts up to $200,000,000 at an arbitrary value of 50 cents an ounce. Consequently, with $7,000,000 worth of silver the British Government obtained a credit of $10,000,000 at the United States Treasury. If it continues payments on the war debt it will still have a source of potential profit in the silver supplies of the Indian Government so long as Congress sees fit to permit this mode of payment.

The time limit for ratification of the agreement is fixed at April 1, 1934. Unanimous ratification, however, is unnecessary; for the agreement stipulates that if any of the silver-producing countries withhold their consent, it still will become effective if those which ratify it make arrangements to buy or withdraw from the market the full allotment of 35,000,000 ounces. For the silver producers this arrangement would be fully as satisfactory as unanimous ratification. If the United States were the only producing country to ratify, and the silver-holding countries also accepted it, the plan would become operative if the United States undertook to purchase the total amount. The present strength of the silver bloc in Congress brings such an arrangement within the realm of possibility.