Saturday, May 2, 2015

Absalootly fascinatin

Running late today. If it matters to you, I apologize. It matters to me.

Following up on the US debasement of 1965, I've been looking into the price of silver. Finally found something that suits my needs -- a brief historical overview. I found Silver, a four-page PDF by Henry E. Hilliard. It was written probably in the late 1990s, so if your interest is current events you won't find it useful. But it was exactly what I was looking for, and I found it, well... absolutely fascinating.

Brief excerpts. I'll try to keep it short.
Prior to World War II, the major uses for silver, other than in coinage, were for jewelry and sterlingware. During the war, however, technological advances were made in electronics and photography. After the war, this technology was used to develop new consumer products. As the demand for consumer goods increased, so did the demand for silver, and, as a result, the market price increased. The higher market price, however, did not result in increased mine production. The Silver Act of 1946 authorized the U.S. Treasury to purchase domestically mined silver at $0.905 and to sell its silver holdings at $0.91 per ounce. Through the first half of the 1950’s, the market price remained below $0.91, so domestic mine operators sold their silver to the Treasury. In the second half of the 1950’s, the continued increase in industrial demand for silver and static mine production resulted in the market price increasing to $0.91 and Treasury silver sales being the largest source of silver for industrial consumers (National Academy of Sciences, 1968).

In the late 1950’s and early 1960’s, a second component was added to the demand side of the supply-demand equation—the investor-speculator. The silver certificates authorized by the Silver Purchase Act of 1934 were redeemable for silver held by the Treasury. At a market price above $1.29, a profit could be made by redeeming the silver certificates, receiving 0.77 ounce of silver from the Treasury, and then selling the silver. In addition, at a market price above $1.38, a profit could be made by melting U.S. circulating coinage for its silver content. Realizing that it could not continue to supply industrial consumers with silver, mint coinage, and maintain a stock of silver for redemption of silver certificates, the Government began a program to demonetize silver. Public Law 88-36, which repealed the Silver Purchase Act of 1934 and authorized the printing of Federal Reserve Notes not redeemable in silver, was passed in mid-1963. The Coinage Act of 1965 eliminated the use of silver in dimes and quarters and reduced the silver content of half dollars. In 1967, silver coins were withdrawn from circulation, and holders of silver certificates were given 1 year, until June 24, 1968, to redeem the certificates for silver (Silver Institute, 1990, p. 6-7).

Okay: Technological change led to increased demand for silver, which drove up the market price of silver until it interfered with the monetary standard price that had been in use by the U.S. government. At that point, the US was forced to debase its silver coinage.

What comes to mind is Milton Friedman saying prices can't go up if the money supply doesn't grow enough to allow it. So I'm wondering whether the increase in silver prices was a relative increase (the price of silver increased relative to other prices in general) or whether it was part of an overall increase in prices. I want to look into that (but not for this post).

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