The Day After Russia Attacks
What War in Ukraine Would Look Like—and How America Should Respond
THE ups and downs of silver have been more marked than those of any other commodity. Silver led the way in the world decline of prices. Recently it has shot up faster than any other. In the current upturn, as in the previous downturn, economic influences are deferring to such mighty political forces that the metal has become more a football of international politics than an element in world commerce. Silver has turned completely irrational.
Today the chief movement in silver is the political drain on China's stock. The last time this writer commented on the subject in this journal he was describing a political influx of silver into China.[i] That was in early 1931. China had already displaced India as the world's greatest silver consumer. It was the recipient of two flows of silver. As the only great country left on the silver standard, it was taking silver in payment of its consistent balances against the world, just as gold-standard countries take gold. Moreover, it was absorbing surplus as well as trade silver. The surplus was derived both from the progressive debasement of silver coinage in European countries as a result of the high wartime price of the metal, and from the demonetization of silver in the Oriental world. India's decision to go on the gold bullion standard in 1927 made that country the chief market factor. Left-over silver was being dumped into silver-standard China in such quantities that in 1930 the Nanking Government had actually put an embargo on the import of foreign silver coin and was contemplating the imposition of an import duty. This was the situation when the silver party in the United States suddenly conceived the notion of lending silver to China!
So quickly did the world situation change, however, that within a year China's balance of payments turned unfavorable. Consequently it was called upon to pay out silver on trade account. There was no question now of a silver loan to China. Just as China's trade position had changed, so had silver politics. Last year the time arrived when the United States Government decided not only to absorb the entire output of American mines but to appear as a buyer in world markets as well. Just as an artificial factor had formerly intensified the suction into China, so after 1931 an artificial factor intensified the natural exodus.
The Silver Purchase Act of June 19, 1934, had for its object the steady accumulation of silver in American vaults until one of two alternative objects had been reached. One was a price of $1.29 an ounce. The other was a one-to-three silver-gold ratio in the metallic reserves. At the time both goals seemed so far distant that a wit declared that the policy had the effect of making the United States Treasury underwrite a perpetual bull market in silver. The same remark could have been offered on the bear side in regard to Indian government sales after 1927. In comparison with the price aim of $1.29 the current market price in June 1934 was 45 cents; and, measured by gold holdings, there was room in the American vaults for upward of 1.3 million ounces of silver, or seven years' output from the mines of the world.
At first world speculators did not take the Silver Purchase Act seriously. Had not Secretary of the Treasury Morgenthau just pleaded with Congress for a year's breathing spell from monetary legislation? Was not the law preceded by counter-arguments in administration circles against the silver arguments advanced on Capitol Hill? Even when the silver pressure became irresistible, did not the law merely express a compromise with Congress in which the President retained final authority in action? To the public the law appeared in the guise of another Thomas inflation amendment -- very permissive. Silver purchases were left entirely to the President's discretion. Perhaps Mr. Roosevelt, feeling that the silver pressure was a depression manifestation (as he had every historical reason to feel), thought that as recovery progressed he might be able to put the authority away in cold storage. But the business indexes in midsummer of last year went down. So in August the purchase of silver got under way.
To date Mr. Morgenthau has acquired in the government vaults 400,000,000 ounces, of which 250,000,000 ounces have been bought abroad -- a drain on foreign countries in nine months which is in excess of a full year's output from world mines. Yet as gold has also been entering the United States in about a 1-3 ratio, little progress has been made in attaining the quantity goal. The price goal is within easier reach. As a result partly of the purchases, but mainly because of the possibility of much more to come, the market price by April 26 had bounced up to 81 cents.
The Silver Purchase Act has created a furore wherever silver is used. To producers everywhere the rise in price has been a godsend. Mexico as the world's chief producer is the chief beneficiary. The hasty airplane journey of a Mexican official to Washington in April might give a contrary appearance. But the Mexican trouble lay in a temporary derangement of the external value of the "managed" Mexican currency as a result of the swift rise in price of silver beyond the melting point in the Mexican coinage. Either the peg on the peso's external value would have to be relaxed or the coins would have to be withdrawn from circulation internally and from contact with market prices externally. Mexico chose the latter course. It clamped an embargo on silver coin exports, called in the circulating silver and exchanged paper money for it. It seemed a short, sharp crisis. Offsetting it was the beneficent effect of the price rise on the product of Mexican mines.
The same profit in high silver prices inures to what the trade calls "other supplies." Silver is one of the few commodities that do not disappear in consumption -- output simply flows into a pool of existing accumulations. It is these "other supplies," or aboveground "mines" in coinage, hoards, public and private treasuries, and ornaments, that are of main importance to the future of silver. If the price of silver goes up, the price of these stores must go up equally with currently mined output. Since 1492, according to the United States Mint, 15 billion ounces of silver have been mined. Of this amount probably about 3 billions have been lost, the greater portion in Davy Jones's locker along with the gallants who sailed the Spanish Main. That would leave 12 billion ounces. Much of this stock was mined on the American continent. But most of it found its way to the Orient, where no silver is produced, in exchange for Oriental wares.
Early Americans aided considerably in channelling the mined output of their continent to the East. The seafarers among them laid the foundation of many a New England fortune in the China trade. Their perennial problem was to find something besides silver to exchange for Chinese merchandise. It was not uncommon for the clippers to sail out of Salem with only ballast in their holds, loading up with "pieces of eight" in European ports for the long voyage to China around the Cape of Good Hope. Dr. Tyler Dennett, in his "Americans in Eastern Asia," tells a vivid story of the nature of the trade merely by citing a merchant's books. He records the business of New York's leading export house trading with China in one year as: specie, $900,000; British manufactured goods, $356,407; American products, furs, ginseng, etc., $60,000. He also mentions a House Committee report in the previous year as saying that "the whole amount of our current coin is probably not more than double that which has been exported in a single year to India, including China in the general term." As a result, one finds today that the yuan (Chinese dollar) is still called the Mexican dollar, or "Mex" in colloquial parlance. What happened in the case of China happened also in India as the result of the operations of the East India Company. Thus the riches opened up by Cortez and Pizarro went to Europe, stayed long enough to produce a succession of commodity price crises, and drifted on in great part to the Orient.
Perhaps the total amount of silver in India and China at present reaches as much as 6.5 billion ounces. That would be over half of the total world stocks of 12 billions. By comparison, Mexico produced only 75 million ounces of the 181 million produced last year. If Mexico stands to benefit from the enhancement of the price of silver, India and China stand to gain in even greater measure, but only, of course, if they sell their silver and if the price gain is not neutralized by currency disorders.
India would be the bigger gainer, for it has fully 4 billion of the 6.5 billion held there and in China. The store is in two forms, caches and the silver rupee. The rupee in its international relations is bound to the paper pound. Its foreign exchange value, therefore, has nothing to do with the price of silver. But in India the rupee circulating in silver is the favored currency for internal transactions. Even the note issue is still convertible into silver rupees. In 1926 the Hilton Young Commission, in recommending that rupee coins be gradually superseded by notes, proposed the removal of the legal obligation to convert notes into silver coin. The recommendation has never been carried out. Though the use of paper money is spreading slowly, the Indian people's suspicion of notes is pronounced, and might perhaps amount to a boycott if those notes were made non-convertible.
Silver as a medium of payments, however, is overshadowed by the function of silver as a bank. Banks as the West knows them are esteemed just as little as paper notes. Many Indians put their savings into silver as in a bank and investment combined. It ought not to be difficult for Westerners to appreciate this attitude toward metal as a store of value. Many great firms in Europe are today investing their surpluses in actual gold. Just after the Michigan bank holiday, Henry Ford told the writer that people were trusting automobiles as a better repository of savings than banks. The Indian people are perennially in a similar situation.
The silver in India has still another attribute. It is more than a bank, more than an investment; it is a choice asset. An occidental collector of old books buys them as a permanent investment as well as an esteemed possession to be handed down to his descendants. Your true bibliophile does not part with an item in his collection simply because its market value goes up in terms of money. He sells only when he is in need. Much the same reasoning could be applied to the Hindu and his silver. He has altogether a different feeling from the one animating a silver miner in Mexico, the American West, or Canada, who looks upon silver only as the cash reward for his labor.
One must not be too dogmatic on this point. The fate of those who dogmatized similarly about gold is fresh before us. Before 1932 the same statement in regard to gold was made by most commissions and authorities on gold. In every textbook you will find India described as a "sink" or a "sponge" for the precious metals. But in 1932, to the astonishment of the monetary world, India started to disgorge gold, a flow which caused more than one economist, thinking of the way out of the depression as conditioned by cheap and abundant money on the basis of enlarged gold reserves, to predict that the world depression was over. The war is still being waged over the question whether the outflow was due to necessitous selling or the eagerness of the people of India to take advantage of the premium on gold created by Britain's (and therefore India's) severance from the gold standard. Perhaps both arguments are correct. World demand for Indian agricultural commodities fell sharply. Therefore the people had to dispose of their gold in buying necessary wares. Also the rajahs and speculators in India saw an opportunity for making a handsome return on gold. The outflow has since been due to the necessity under which the Indian Government finds itself to export the metal in supporting a currency that seems to be overvalued.
The question is: Would private silver come out like private gold if there were the same price incentive? Such a result is less likely. India, like Britain, seems to be past the nadir of the depression. Moreover, silver is the poor man's gold, and, consequently, is less likely to be held as an investment to be turned into cash at the behest of price. There has already been enough experience to warrant this statement. Silver has doubled in price since the silver policy started, nevertheless no private silver has yet come out. Such is the Indian love for silver that distress would have to be fairly acute before the non-speculative Indian would part with his silver caches. He would cling to them with the same tenacity as a hard-pressed occidental clings to the family homestead.
While the price-boosting is certainly advantageous to the Indian people (and, it should not be forgotten, to the surplus-owning government) in increasing the value of their silver collections, it will not necessarily be advantageous to their purchasing power at home or abroad. It is this argument, it may be recalled, that the silver party have used as one of the many arguments in favor of silver buying. What advances Indian purchasing power is a greater absorption of the country's export commodities, such as jute, shellac, cotton. With the proceeds of these sales the people of India buy the industrial goods of the West -- and silver. They do not buy foreign industrial goods with silver. Indeed the writer last year said that, far from exchanging their silver for industrial goods, the people of India might curb buying those industrial goods if economic adversity made the choice one between those goods and silver.[ii] One caveat to that statement needs now to be entered. While the price of silver has been moving up, speculators in India have been among the most active competitors with Mr. Roosevelt for world supplies, the object being to unload their purchases on the United States when the price "ceiling" gets nearer.
What is of greatest moment in connection with the effect upon India of soaring prices for silver is not the effect on India's purchasing power. It is the possible effect on India's currency. A melting-point crisis would be much more serious in India than it was in Mexico. At this time, when India is being launched upon the delicate sea of self-government, it might have tremendous consequences. One can imagine the India Office in London, therefore, watching the silver experiment in Washington with the greatest apprehension. One rupee contains about a third of an ounce of silver, and the melting point would therefore arrive when (at the existing exchange rates) silver goes a little over $1 an ounce, that is to say far under the $1.29 authorized by Congress. What will happen in India when the price begins to approach the dollar mark?
This question has aroused the liveliest discussion. In a long cable from London appearing in the New York Times of April 21, Mr. Frederic E. Holsinger, former managing editor of the Indian Daily Mail, Bombay, says that there would be three ways out of a melting-point crisis: (1), to raise the rupee-sterling rate from 16 pence to 24 pence; (2), to reduce the quantity of fine silver in the rupee; and (3), to raise the gold (meaning also dollar) rate of the pound. He indicated that the third course would have to be followed. He is plainly in favor of it. To him the entire silver policy appears in the guise of a club with which to "persuade" Britain to raise the pound to $5. What a pass we have reached as a result of "devaluation competition" and monetary competition that we should be talking in terms of clubs fashioned so crudely! Certainly it could not force a change in British monetary policy. For management of the gold value of sterling (and therefore of the rupee) is dependent upon a dozen considerations superior to or equal to the Indian exchange rate.
If this argument has no merit, the argument that dollar silver might see a rise in the rupee-sterling rate has even less. Exchange rates have become the subject of keen political controversies. But the rupee-sterling rate has been in this category ever since post-war India was put on an eighteen penny rate (36½ cents) instead of the pre-war sixteen penny rate. After the war many countries devalued their currencies. Some elected to return to the pre-war rate. India was the only country that revalued at a higher rate than the pre-war rate. The controversy for a cheaper rate in the interests of the Indian export trade has gathered volume as the continued export of gold has revealed the overvaluation of the rupee. The notion that the rate might be advanced in order to counter the increase in the silver price of the rupee coin is, therefore, fanciful. Such a move would put the fat in the Anglo-Indian fire.
That also would be the case, it seems, if an attempt were to be made to debase the rupee. The London Economist hazards the opinion that Delhi would do this. The people of India, however, are well aware of the silver value of their coins. That they use the coins as investments equally with bar silver and ornaments was revealed to the writer some time ago when an up-country lawyer told of being habitually paid in rupees dug up out of the ground. It would be politically risky to tamper with the fineness of the silver rupee. It would not be in accordance, furthermore, with precedent. After the war, when silver made its last sensational climb, the British Government debased its own silver coins, from nine-tenths to five-tenths. The Government of India, however, resisted the temptation, and today the rupee is nine-tenths pure.
What India would do, perhaps, is what every country so far faced with a melting-point crisis has done. It would either put an embargo on silver exports or impose such a high duty on them as to keep the exchange value of the rupee below its bullion point. If that did not prevent a crisis, such a crisis would not be so profound as the one that would be caused by any of the other measures. And it has the support of precedent. A melting-point crisis occurred in India when the wartime demand sent silver up to $1.37 an ounce. The situation was met by a law making it illegal to use silver coin for other than currency purposes, and the export of silver coin and bullion was prohibited except under license. An effort also would be made to economize the use of silver in coinage. The old propaganda to persuade the people of India to use notes instead of coins would be intensified, just as was done in the last melting-point crisis, when nickel coins in small denominations also took the place of silver coins.
China benefits with India in the rise in value of its silver stores if it sells them. In China there are 2.5 billion ounces, as compared with 4 billions in India. But, as the recurrent protests from China bear out, the advantage for China in marking up its supplies is buried in the currency and commercial chaos which the Silver Purchase Act has produced. The reason for this chaos in China marks the difference between the monetary systems of that country and India. In China silver normally occupies a three-tiered throne, being the standard of value, as well as a medium of internal payments and a store of value. This means that China's exchange with foreign moneys is dictated by the price of silver. The two go together. Thus Mr. Roosevelt, in "bulling" silver, must by the same token "bull" Chinese exchange.
It is China's exchange problem that, among the various repercussions of the American silver policy, has attracted the most attention. Senator Key Pittman calls the tale of China's tribulation as told to the United States Treasury by Chinese spokesmen "utter rot." This is hardly fair, though the Senator would be on sure ground if he explained that, as we have already seen, China began to ship out silver originally because of the turn in its balance of payments from favorable to unfavorable. How even a high exchange could be disadvantageous to China should be no problem to Americans to understand when it is remembered that they were told so freely in the early days of 1933 that all their troubles were due to high American exchange in relation to the pound. Theoretically, a high exchange hurts exports and encourages imports. An increasingly high rate of course makes the situation much worse. It upsets the balance between the export and import trade and ends up by making both of them a sheer gamble. It tends so to overvalue the currency that the overvalued nation is drained of its metallic reserves in keeping up the rate. This reacts further on commerce.
The effect of American silver buying is plain in the figures of China's foreign trade. In February 1935 (the last figures available), exports from the United States to China, which were to be advanced by the increase in the price and therefore the purchasing power of China's silver, dropped by 24 percent as compared with the preceding February. And imports into the United States from China, which by the same token should have declined, increased by 19 percent. If the American silver group imagined that any people would long tolerate such an obvious manipulation of the exchange in the interests of a foreign nation's exports, they had quickly forgotten their own experiences. Before the end of June 1934 (the month of the Silver Purchase Act), China had raised its tariff, and the increases bore severely on American goods. It proceeded to take currency action by way of further fortification. Just as the United States took the peg out of its relatively high exchange rate in March 1933, so China, after futile protests to Washington, followed suit on October 15, 1934.
The Chinese, however, did not suspend silver payments internally. With a people who use hard money in their everyday transactions this was impossible. What they did was to try to shield their exchange from the market price of silver. An export tax was imposed. To it was added a so-called equalization charge, intended to rise in sympathy with the difference between Chinese exchange and outside silver prices. The object, of course, was to break the link connecting Chinese exchange with the price of silver by shutting off the Chinese silver market. The effort has been only partly successful. From 33 cents at the time of the Silver Purchase Act, the Chinese yuan had risen by the end of April 1935 to 41 cents, or a 24 percent increase, as compared with a rise of silver from 45 cents to 73 cents, or 60 percent.
The difficulties in the way of effective Chinese control are many. One is smuggling. The other is the Nanking Government's lack of authority over the banks.
Efficient as is the foreign-officered customs service, Chinese smugglers are even more efficient. Their efficiency, coupled with the nearness of the market in silver-standard Hongkong, will make the illicit traffic in silver a thorn in the Chinese Government's side so long as the present problem exists. Smuggling will of course thrive as the margin between Chinese exchange and the price of silver advances, for the temptation to run silver across the border would be increased pro tanto. Yet, if the Chinese push the equalization charge too close on the heels of soaring silver, they risk loss of confidence at home; hence more chaos, more deflation. All that they have done so far is to straddle the dilemma.
But, if this smuggling problem is seemingly insoluble, the Chinese authorities are moving energetically to cope with the second obstacle, namely that arising out of their lack of control over the banks. Banks as well as smugglers at first found irresistible the temptation to profit by the exchange. At the end of April of this year a tidy profit could still be made. For, though the exchange rate of the yuan was 30 percent below its foreign parity, the export tax and the equalization charge on exports of silver did not cancel the difference, but allowed a profit to the exporter of Chinese currency of as much as 12 percent. Not as much as the smugglers could make, but, none the less, a sizable profit in these days of thin margins.
In China the foreign banks are even more important than the native ones. The Nanking Government is faced with the dilemma that the foreign banks, as a result of their extraterritorial privileges, are not under its jurisdiction. Knowledge that these banks were not coöperating to prevent speculation in exchange was aired freely in the Chinese press last September. Particularly was criticism centered on the great British bank, the Hongkong and Shanghai Banking Corporation. Latterly, however, some degree of coöperation appears to have been attained. In respect of the foreign banks, it rests upon a pledge not to play the exchange market. In so far as the Chinese banks are concerned, the Nanking Government has obtained control over the three leading Chinese banks, which hold nearly 68 percent of the Shanghai silver stocks. Another 17 percent is held by the foreign banks now pledged to coöperation.
China's disillusionment with the United States has caused Chinese statesmen to lose that sense of decorum for which they are legitimately renowned. Very abrupt is the comment of the Committee appointed by the Nanking Government to study the silver crisis. "The silver-buying policy of the United States," it says, "is akin to the straw that broke the camel's back." Note the acknowledgment of the pre-existing burden on China's back arising from the unfavorable turn in its balance of foreign payments. With western frankness, T. V. Soong says: "I can see no sense in the American policy. Nor can anybody else." Mr. Soong is the new head of the Bank of China. As Minister of Finance, he traveled to the United States in 1933 to participate in the famous conversations in preparation for the unfortunate World Conference. Not only he, but all other Chinese visitors at that time refused to tell the American public the simple fact of Chinese requirement vis-à-vis silver, namely, that just as the gold standard world requires stability in the purchasing power of gold in commodities, so silver standard China requires stability of silver in terms of other commodities. The world "stabilization" was constantly on Mr. Soong's lips. At that time he and his colleagues were disturbed because of the deep dip in silver compared with other commodities. Yet he must have known that stabilization as used by the silver party in the United States was a poetic word meaning a boost in price without regard to any other commodity. He refused to lend the prestige of his name to those who were trying to explain China's real interest in silver, making them seem, in the eyes of the American silver party, incompetent judges of the silver case as it looked from China. We may recall in especial the surprise and chagrin in certain departments in Washington when the terms of the Soong-Roosevelt communiqué of May 19 was announced. Mr. Soong allowed himself to say jointly with the President: "We consider it essential that the price of silver, the great medium of exchange of the East, should be enhanced and stabilized."
This is not to say that Mr. Soong rendered a complete disservice to his country. Among other things he wished to do his part in enlisting American political interest in China's struggle with Japan. Mr. Soong sacrificed his country's economic interests to its political interests to the extent of going on to the World Economic Conference and solemnly participating in a silver agreement (widely touted as the only constructive achievement of that ill-fated parley) under which China agreed not to sell any demonetized silver. China, that is to say, was not to go off the silver standard. This self-denying ordinance was ironical enough. In retrospect it looks positively ludicrous. For the ink was scarcely dry on the agreement when the American silver party which had manipulated it started to drive China off the silver standard by pushing up the price of silver artificially. The agreement bound the parties to "mitigate the fluctuations in the price of silver" and to provide for its "effective stabilization." The extent of the "mitigation" in fluctuation is revealed in the most astonishing price rise in history -- from 35½ cents an ounce on the day the London pact was signed to 81 cents on April 26, 1935. As to stabilization, even the fastest-moving commodity price level in the world of prices -- namely, the American price level -- has gone up only 17 percent, as compared with this rise in silver of over 100 percent. Stabilization is, indeed, a very flexible word.
The crisis in China is, as we have shown, no means over. If silver continues to soar toward the American statutory goal of $1.29, it will get worse. How can the harassed Chinese cope with it? Several steps have been suggested: (1), that China should "manage" or "regulate" its currency independently of fluctuations in gold and silver values; (2), that it should devalue its currency; (3), that it should tie its currency to a foreign currency, either sterling or a gold currency; and (4), that it should go on the gold standard.
Devaluation is probably the least likely development. With silver movements still in the lap of the gods, a devaluation would simply mean that the Chinese yuan would be attached again to a metal in flight. It is the vagaries of silver more than the price of silver that disturbs China. Under devaluation the vagaries would not be wiped out. The Chinese yuan would soar again, though at a lower altitude. Internally the problem would be just as great as externally. Silver in China is neither in government nor bank vaults. It is in the hands of the people. And it circulates at practically its bullion value. Chinese in general are not interested in dollars or yuan as such. Whereas we in the West look upon the dollar as a thing-in-itself, the Chinese look upon the silver value in the coin or the contract. Honest metal is their safeguard against dishonest government of the kind that disfigured the Manchurian governments in the Chinese republican régime. Devaluation would thus involve much more than the rewriting of existing contracts in a country where no Supreme Court is law. It would involve the actual calling in of metal for some old-fashioned coin-clipping of the kind for which Dante consigned the mediæval monarchs to his Inferno and with which Henry VIII helped to fill his privy purse. It is difficult to say which would be more difficult in China: the rewriting of contracts or the coin clipping. Bear in mind as a final evidence of the nature of the problem that the writ of the Nanking Government does not even control the activities of some of the mints.
The other suggested steps require as a sine qua non the building up of foreign balances. This would be no less necessary in moving on to the gold standard than in forming the gold exchange or sterling standard. China has little gold left. It certainly could not use the silver it has already lost to buy any! Moreover, such is the condition of its international balance sheet that an outward flow of silver is still necessary in settlements. In other words, China is on a deficit basis. At this rate it cannot build up foreign exchange balances.
This latter consideration is keeping alive the project of an international loan for currency stabilization in China in relation to either the gold or sterling exchanges. That would be a fit subject for a vivid chapter in the history of these irrational monetary times. After disorganizing the Chinese exchange, we propose to lend China the money to put it right; and, to make the irony more ironic, to keep it down, when currency loans are usually made for the purpose of supporting currencies. Perhaps this latter phase of the proposed loan, however, is no more peculiar than the spectacle of a British Treasury official at Geneva advising the gold bloc in Europe to default on their gold payments. In present circumstances the loan would have to be very large to be at all efficacious.
All the suggestions imply that China is still on the silver standard. Monetary terminology has been all but deprived of meaning by the currency experimentation produced by the depression. When the United States, after leaving the gold standard in March, again left that standard in April, Secretary of the Treasury Woodin, on being told the news, is reported to have exclaimed "What, again?" Similarly, if we mean free and ready convertibility of currency into metal over international borders as the condition precedent of a metal standard, China deserted the silver standard on October 15, 1934. It does not matter that internal payments are still being made. China has a "managed" currency in the sense that, like Great Britain, it regulates the foreign value of its currency independently of metal. We must conclude, therefore, that step No. 1 has already been taken -- that China should "manage" or "regulate" its currency independently of fluctuations in silver or gold values.
It will be observed that all these discussions revolve around alternatives to the silver standard. Such a prospect should be of serious moment to world silver producers. For China is the last grand stalwart of silver -- that is, unless the United States intends to take its place. This evolution is apparently what the Mexicans feel to be imminent. Mr. Lopez, in his public reference to the Morgenthau-Lopez conversations in April, said: "Mexico cannot but look favorably upon the revalorization of the metal." Revalorization is as suspicious a word as stabilization. It looks as if the Mexicans were counting on Mr. Roosevelt to lead the world to bimetallism or some other form of gold-silver standard.
Otherwise they must already have asked themselves: What will happen to the price when American silver requirements are met? What will happen then to world silver? Surely, when the hand of Mr. Roosevelt has been withdrawn, it must relapse to a market supply and demand basis. And with country after country (including even the greatest producer, Mexico) substituting paper money for silver coinage, the demand basis may be much thinner. Perhaps the time may not be so distant when another article may have to be written treating of another silver crisis arising out of another rash of debasement and demonetization.
[i] FOREIGN AFFAIRS, April 1931.
[ii] Address before the American Association for the Advancement of Science, at Pittsburgh, December 29, 1934.