The Cross of Silver

Oscar B. Johannsen

[Reprinted from the Henry George News, May, 1965]

"You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold." So roared William Jennings Bryan, in his famous "Cross of Gold" speech which swept the delegates at the national democratic convention off their feet in 1896 and awarded him the nomination as candidate for the presidency of the United States. Today, 69 years later, there is evidence that our freedom may be crucified on a cross of silver.

The inexorable workings of Gresham's law - bad money displacing good have precipitated a coin shortage. Bad paper money is pushing gold and silver out of the country. But silver is not merely flowing abroad, it is flowing into teapots and safes all over the country. Thousands of half dollars are going into safe deposit boxes, as owners await the day when the price of silver will rise above $1.2929. Cart-wheels, those silver dollars that have been with us since the founding of the Republic, shattered the aplomb of our treasury officials last year, for people actually camped overnight at the treasury building in Washington to be among the first in line to redeem their silver certificates for these rare coins. And why? Because the price of silver had risen to the point where it would soon be profitable to melt the dollars which are composed of 90 per cent silver and 10 per cent copper. The price at which it has sold formerly has been so low that the silver content was kept intentionally at much less than the price specified on the face of the coin. When the price hit 1.2929 the .77 ounce of silver in a cartwheel was worth $1, and the hoarding began.

The lines besieging the treasury were so long and objectionable, and the drain on its supply so great, that in March 1964 the Secretary of the Treasury drove out the money changers. He could not legally prevent the redemption of silver certificates, so he directed that anyone desiring silver would have to get it either at the New York or San Francisco mint. There they would be given .77 of an ounce of silver "crystals" sifted into a plain envelope. This halted the demand since few people wanted silver dust, but the drain was so great that the treasury has only about $3 million left in silver dollars, most of them probably from a mint which existed at Carson City around 1900. These dollars have "special numismatic value."

Until the treasury can issue a new type of subsidiary coinage it cannot let the price of silver go above $1.2929, for it does not want the 480 million concealed cartwheels to melted down. To prevent this it h been selling silver from its stockpile at the rate of 400 million ounces year. But it has only 1.2 billion ounces left - enough for four years. It cannot deplete the stockpile for the defense department is likely to insist on a reserve of about 600 million ounces for possible military use - this would further reduce the supply by half. Even if the treasury discontinued the cartwheels it could not let the other silver denominations wind up in the melting pot. The price at which their silver content is equal to their face amount is $1.3824, not quite 10 cents above the present price. Thus something must be done soon.

Subsidiary coins are tokens that are accepted when the government stands ready to redeem them at their face amount, but money in the United States is still based on gold. Before the rise in the price of silver, a cartwheel could be exchanged for a dollar's worth of goods because 35 cartwheels represented an ounce of gold. (Presumably the price of gold is $35 an ounce. The fact that the government prohibits the ownership of gold, other than in certain forms such as jewelry, makes the redemption theoretical.)

In order to retire as many silver certificates as possible without the necessity of redeeming them in silver, the treasury in 1963 had Congress enact legislation replacing the $1 silver certificates with $1 Federal Reserve Notes. If you examine a $1 FR Note you will find it merely states "One Dollar," and that it is legal tender. Contrast this with a $5 FR Note which is clearly an IOU - but what is the $1 FR Note? It is pure fiat money and is concrete evidence of the gradual deterioration of our monetary system.

The treasury study is expected to recommend either the issuance of silver coins with a silver content so small as to obviate the likelihood of the price of silver reaching a point where coins would be melted down, or the substitution of different materials. Copper and nickel alloys have been suggested; but vending machines, toll collectors and telephones are geared to silver coins, and conversion of all such devices would be costly.

This silver crisis is important chiefly because it may trigger loss of confidence in the dollar. As the government has adopted the Keynesian policy of creating full employment by piling one deficit on another, the amount of credit created by this process has been fantastic. While this has resulted in prices creeping up, as in the case of silver, they are not nearly as high as they would be if all the credit was being used. As long as new credit is hoarded no serious price rise is imminent. However, once people become alarmed over the purchasing power of their paper dollars, they will spend like mad.

This is a constant worry to the monetary authorities. So fearful are they that when Congress passed the law repealing the requirements that demand deposits be backed by gold, they rushed it through with as little publicity as possible. At the same time they reassured the public by retaining the gold backing of Federal Reserve Notes. Most people never see gold coins, and are not aware that the gold backing of demand deposits has been withdrawn, but the case of silver is quite different. People handle silver coins every day, testing them occasionally to make sure they are not counterfeit. They like the feel and the ring of sound coins.

Most students of George recognize that goods and services are purchased with other goods and services and money acts primarily as a medium to facilitate that process. They regard it merely as the oil which lubricates the economic machine but not as part of the machine itself. This is not strictly true but true enough to allay their immediate concern.

Georgists make freedom their first objective, and the solution of the land problem is the indispensable prerequisite for securing this freedom. But if their preoccupations lead them to exclude such things as the question of a proper monetary system, they may find some day that freedom has been lost along with the vain attempt to solve the other problem.

If people rush out on a buying spree, the government will respond by adding one restrictive measure after another, such as price controls and rationing-in the effort to halt price rises. The silver crisis may presage loss of freedom for America, not on Bryan's cross of gold, but on a cross of silver.