FEDERAL RESERVE BANK OF RICHMOND JANUARY 1962

Transcription

1 FEDERAL RESERVE BANK OF RICHMOND JANUARY 1962

2 2 FIFTH DISTRICT Fifth D istrict business coasted into 1961, Imt the slope w as not steep nor the surface very slick. M any areas of enterprise had m aintained firm footing through 1960 despite adverse developm ents and, before that old year" ended, grow ing resistance to further recession had become quite apparent. The D istrict closely paralleled the nation in this respect. F or both, the recession that began in the 1960 second quarter came to an end in the second month of The nation s dow nw ard momentum, however, caused some skiddin g on the tu rn and a slow er early recovery. For instance, D istrict nonfarm employment, which had declined during the recession at v irtu ally the same rate as in the nation, returned to its 1960 average level in M ay and went on to a new high in July. B ut national nonfarm em ployment did not reattain 1960 s m onthly average until October and seemed un lik ely to set an y new records in EMPLOYMENT COMPONENTS CHANGE The fact that D istrict em ployment did set new records in 1961 w arran ts closer attention. Seaso n ally ad ju sted nonfarm jobs totaled 4,708,000 at the 1960 high. The recession wiped out about 80,000 of these, but re covery soon re-established that num ber and then created about 30,000 m ore. In the process, however, there was a m arked shift from four rather broad areas into four generally more narrow ones. Late in 1961, for instance, em ploym ent w as below 1960 record levels by about 25,000 in m anufacturing; 8,000 in m in in g; 10,000 in transportation, com munication, and public u tilitie s ; and 7,000 in trade. But these losses w ere m ore than offset by increases over p rerecession highs of ap p ro xim ately 48,000 in governm ent ; 22,000 in services and m iscellaneous en terprises ; 6,000 in contract construction; and 7,000 in finance, insurance, and real estate. E xcept for contract construction, recession losses in the latter groups w ere negligible. O ther indicators available on a com parable basis for the D istrict and the nation tell a sim ilar story. M anufacturing m an-hours for both w ere cyclically low in December D istrict m an-hours rose above 1960 s m onthly average in June, but the pace slowed and the M ay 1960 record w as not reached. T he recovery in national m an-hours w as slow er still. The 1960 m onthly average w as not equaled until November, and the previous high was clearly out of reach for the duration of D istrict construction contracts have frequently behaved differently from those of the nation. In 1961, however, the two w ere much alike. Both w ere cyclically low in F eb ruary. The value of D istrict aw ards surpassed its 1960 m onthly average in A pril, and national aw ards reached this m ark in June. L ate in the year, however, both series w ere still below prerecession levels. The broader D istrict indicators, bank debits and estim ated personal income, did reach new m onthly highs du rin g the year. EXPECTATIONS NOT QUITE FULFILLED The year 1961 ended a recession and provided ten months of uneven business im provem ent. D istrict progress, a l though generally more rapid than on the national plane, never built up much momentum. The 1960 decline had been com paratively m ild, so m ild in fact that some 1960 and 1961 annual figures show nothing more serious than below -average grow th. "Idie recovery in 1961 turned out to be less vigorous than m any analysts expected, however, and m any m anufacturing industries rem ained below peak levels of activity. The developments sum m arized thus far could not have been discovered as precisely nor presented as effectively without the aid of statistics. Y et, statistics alone are cold and im personal. Behind the grow th shown by averages and ag greg ates are real developments that constitute progress. People are ju stly proud of their states, cities, counties, and towns. T hey are proud of the business, social, and political organizations through which they unite their efforts for progress. A s residents of all parts of the Fifth D istrict toured the old, fam iliar places during 1961, they found m an y exam ples of new ideas m aterializing in w ays that enrich lives and reinforce loyalties. MARYLAND'S MODERN MILIEU Baltim ore combines industry and commerce in a port city complex that ranks near the m iddle of the nation s top ten. Idere the heart of one of the oldest cities is takin g on a new look. C harles C enter, largest of 14 redevelopment projects begun five years ago, progressed well in 1961 tow ard reshaping 32 acres of old downtown

3 M a ry la n d has m an y la rg e in d u strie s but listed the g ro w th of sm all e n te rp rise as one of the most s ig n ific a n t fe a tu re s o f changes, and two new Potom ac R iv e r b ridges. T he C ircum feren tial H ig h w a y w ill perm it veh icles to en ter the D istrict of C olum bia s m aze of streets at convenient points and w ill c a rry outbound traffic q u ick ly to airp o rts and b urgeon ing suburban areas. O ver 7 m illion to u rists and convention delegates sw arm ed th ro ugh the city in T he num ber of to u rists w as estim ated to be su b stan tially h ig h er than in ; convention traffic, how ever, w as down som ew hat. In creases in to u rist trade, construction p aychecks, and other em ploym ent su b stan tially boosted the flow of paym en ts. B an k debits, v irtu a lly unchanged betw een 1959 and 1960, jum p ed m ore than 10% in T h e econom y of the m etropolitan are a gave the ap p earan ce of buoyant good health. It w as a record em ploym ent y e a r, and unem ploym ent rates w ere co n sisten tly low. P ub lic em ploym ent g rew, but p rivate business g rew even faster and, w h ereas the tw o sectors w ere about equal 15 y ears ago, there are now three jobs in p rivate business for ev ery tw o in governm ent. B altim ore. C ranes and bulldozers have leveled m uch of this area, and foundations are alread y w ell along for the first of the new b uild in gs, a 21-sto ry office tow er to be know n as One C harles C enter. T he plan also includes a F ed eral office b u ild in g ; a second office s k y s c r a p e r ; an un d ergrou nd p ark in g g a r a g e ; u tility, financial, and re ta il business b u ild in g s ; a p a rt m ent to w e rs; a h o tel; a th e a tre ; and a public p ark. M a ry la n d in d u stry g e n era lly moved fo rw ard at a rap id pace. L ate last y e a r, the S p arro w s Po in t steel m ill, the n atio n s b iggest, w as rep o rted ly o p eratin g 28 of its 35 open hearths and read y to fire up others. T h e huge sh ip yard at the sam e location held con tracts to build 20 ships, n e a rly tw ice as m an y as its b iggest com petitor. T h e M ack T ru ck C om pany re located a form er N ew J e r s e y operation at H a g e rs tow n, b rin g in g new jobs to an area w here jobs have been scarce. O ther new plan ts p roducing books, p aper co ntainers, electronic com ponents, m etal prod ucts, b uild in g m aterials, chem icals, and g lass re flected b ro ad ly diversified grow th. S m all, sciencerelated in d ustries increased in num ber d u rin g 1961, co n tin uing a ten -yea r trend w hich has stead ily gain ed m om entum. E m ploym ent reached record levels, and unem ploym ent rates w ere the low est since V IRG IN IA'S CO A STA L RESOURCES T he economic a c tiv ity of the D istrict of C olum bia reaches w ell into N orthern V irg in ia. T he H am pton R oads region also figures p ro m in ently in 1961 s p ro gress report. W o rk began on the C hesapeake B ay B rid g e-t u n n el and on new port facilities. In d u strial and com m ercial gro w th continued in N o rfo lk s redevelopm ent area and in business centers across the state. From a point on the V irg in ia shore east of N or folk, a w alk in g p ile -d riv e r is w ad in g across the m outh of C hesapeake B a y leav in g row s of concrete p ilin gs w hich w ill support the first of three trestles to be connected by tw o tunnels. T w o bridges and a cau sew ay w ill also be built to com plete the 17.6-m ile span n o rth w ard to Cape C h arles. T he new cro ssin g w ill be a boon to traffic m oving along the A tlan tic seaboard but is p a rtic u la rly expected to prom ote econom ic developm ent in ad jacen t areas. A lre a d y C H A N G IN G W ASH IN GTO N Construction p ro jects on the d raw in g boards, in p ro gress, or recen tly com pleted tell m ost of the W ash in g to n story. T he D is trict of C olum bia is g ain in g six F ed eral office b uild in g s ; a new In tern atio n al B an k b u ild in g ; tw o a d d i tions to the Sm ithsonian Institution ; ten new hotels ; a stadium seatin g 50,0 00; m ore than a dozen larg e, p riv a te ly financed office b uild in gs and a p a rtm e n ts ; new liv in g, shopping, and recreational facilities in a 560-acre red evelo p m en t; street, h igh w ay, w ater, sew er, and d rain ag e im provem ents all these plus e x pansion and rem o delin g of e x istin g structures. N eigh b o rin g areas of M ary la n d and V irg in ia are be in g d ra stica lly changed by a rin g of h igh w ays, in te r V irg in ia 's ports w ill soon h ave la rg e, n e w g e n e ra l ca rg o fa c ilitie s w ith w h ich to serve a b ro a d e r segm ent of the re g io n a l econ o m y. 3

4 com pared w ith d eclin in g levels th at av eraged 50,000 and 56,000 in 1960 and 1959, resp ectively. Coal m arkets, fa irly stable in 1959 and 1960, showed new stren gth both at home and o verseas. A F ed eral Office of Coal R esearch w as set up in the D ep art m ent of the In terio r to stu d y new uses for coal. A plan w as announced to build a coal s lu r r y pipeline from W e st V irg in ia to n o rth eastern m arkets. E x perience w ith such a pipeline in Ohio proved that pow dered coal in w ater can be m oved in this w ay. T hough legal co m plexities still ex ist, the idea has given the coal in d u stry new hope for reco verin g some long lost business. M ean w h ile, state and local officials and p riv ate in terests took steps to prom ote new in d u stry. T he W e st V irg in ia 's econo m y im p ro ve d in 1961 a s n e w in d u strie s m oved in, som e e x is tin g firm s e x p a n d e d, an d co al m ining sta b iliz e d. new in d u stries and service agencies are looking at T id ew ate r sites 011 both sides of the B ay. T he S tate P o rts A u th o rity and two railro ad s m oved q u ick ly d u rin g 1961 to en large and im prove V irg in ia s shipping facilities. B ased on a su rv ey of the potential grow th of freigh t and p assen ger traffic, the P o rts A u th o rity acquired certain p riv a te ly owned piers and w ater-fro n t p ro p erty and began w ork 011 a new 1,200-foot p ier to handle ev ery kind of packaged freigh t for tran sfer to all typ es of inland tran sp o r tation. T he ra ilw a y s en larged and im proved coal facilities in an ticip ation of b igger foreign m arkets. T rav elin g, belt-fed loaders w ill fill a ship s hold at rates up to 20,000 tons per hour. R esid en tial, in d u strial, and com m ercial expansion proceeded at a good rate in and n ear m ost V irg in ia cities. N orfolk m oved ahead w ith plans for new office b uild in gs, hotels, p a rk in g facilities, and a m edi cal center. T h us, 1961 brought new stren gth to V ir g in ia s w ell-balan ced p attern of econom ic grow th. It is perhaps su r p risin g th at m easures of business in W e st V irg in ia show an y gro w th at all, for this m ountainous state has lost population each y e a r since Y et bank debits, in sig n ifican tly h igh er in 1960 than in 1959, rose 2% in N o nagricu ltu ral em ploym ent did decline a little in both 1960 and 1961, reflectin g re ductions in m in in g, m an ufacturin g, trad e, and tra n s portation, but m an u factu rin g m an-hours rose d u rin g m ost of 1961 and ended the y ear about even w ith 1960 on the basis of m onthly av erages. D ram atic changes lie behind this rath er p assive statistical p icture. T h e y e a r under review w as one of tran sitio n. Coal m in in g em ploym ent w as v irtu a lly stable all y e a r at levels slig h tly in excess of 40,000 WEST V IR G IN IA TRANSITION 4 N orth C a ro lin a g a in e d m a n y n e w fa c to rie s d u rin g , b ut it w o u ld t huge South C harleston N aval ordnance plant, idle since the w ar, w as p urchased by a lead in g firm and is being readied for chem ical production. P lastic film and synth etic fiber m an ufacturers and two a ir craft com panies took steps to locate factories in the state. A num ber of m etal and chem ical plan ts e x panded. S tate officials announced plans to train w orkers for in d u strial jobs. W e st V irg in ia s 1961 p ro gress w as view ed by m any as the b eginn ing of a hopeful, new trend. In 1961 N orth C arolin a bounced back from recession w ith a w ave of new grow th. A ltho ugh reco very w as quite general as indicated by in creases from 1960 levels of 1% and 7fc in nonfarm em ploym ent and bank debits, resp ectively some im portant in d ustries faced diffi culties. T he g ian t tex tile com plex, in w hich South VARIETY MARKS TARHEEL GROW TH

5 C arolina and V irg in ia also figure, experienced uneven demand and soft prices in m any lines but finished the year w ith most m ills operating 011 a full, three-shift schedule. F urn iture sales and production w ere slack for the first half of the year but picked up b riskly thereafter. O ther m anufacturers also did a good volume of business. Concern stemmed from stiffer competition caused by expanding capacity and from risin g costs attributable largely to a higher m inim um w age and a boost in cotton prices. O nly lum ber suffered from consistently slack dem and. N orth C arolina s grow th during 1961 occurred m ain ly through m any sm all- and m edium -sized companies. Exceptions to this rule, however, included a cigarette plant at W in sto n-s alem, an airlin e reserbasic research in polym er chem istry w ere added to its p hysical plant. SOUTH CAROLINA'S SOARING SIXTIES Investm ent in new prodvictive capacity, according to the State Development Board, averaged $117 m illion annually in South C arolina during most of the decade of the Fifties. Then in 1959 and 1960 the figure jum ped to more than $200 m illion. Industrial development slowed a little early in 1961 but revived quickly, and the y e a r ended w ith w ork 011 new facilities proceeding at a record pace. D iversification w as 1961 s outstanding feature. E xpansion involved such products as glass fibers, chem icals, paper, m etals, photographic m aterials, electrical equipm ent, and foods. To aid and encourage industrial grow th, state funds w ere appropriated during the year for in d ustrial train in g. T he program w ill aim to strengthen in dustrial arts and vocational train in g in high schools, to train high school graduates for specific technical jobs, and to give others an opportunity to learn or im prove in d u strial skills. M any factors attest to South C arolina s rapid grow th. B ank debit figures have increased relativ e ly more in South C arolina during the last decade than in an y of the other Fifth D istrict states, and em ploym ent in nonm anufacturing enterprises gained in n early every year during the period. O ccasional setbacks in m anufacturing em ployment have been due to the ch an ging fortunes of the dom inant tex tile industry. Industrial diversification, which progressed so well in 1961, w ill reduce the state s heavy dependence 011 a single m arket. eral " ave rag e " operations to match in value the output of this one. vations center at Charlotte, and a num ber of large housing projects and shopping centers. M ore than 400 industrial projects w ere announced during the year, and the resulting capital investm ent is expected to exceed $375 m illion. Significant developments of a more unusual nature included the N orth C arolina T rad e F air, w hich attracted buyers from m an y foreign countries, and advances at the R esearch T ria n gle, a separate organization with access to the pool of knowledge provided by Duke U niversity, the U niversity of N orth C arolina, and North C arolina State College. The T rian gle s clients in 1961 included six F ederal agencies, four educational institutions, two national associations, and five industrial firms. A new headquarters building, rental facilities for sm aller clients, and an ultram odern laboratory for South C a ro lin a 's in d u strial d ive rsificatio n m ade rap id progress in 1961, e xp an d in g product lines from foods to g lass fib e rs. 5

6 Concentration of Fifth District B Nearly two-thirds of the Fifth District's total bank deposits at last report (June 15, 1960) w ere concentrated in its metropolitan areas 18 centers of business, industry, and government covering less than 10% of the District's land area but occupied by almost one-half of its total population.* Over one-third of the District's bank deposits w ere located in the Baltimore and W ashington metropolitan areas alone. But the centralization w as even more m arked. Together, banks in the cities of Baltimore and W ashington held over one-fourth of total bank deposits in the Fifth District, slightly more than threefourths of the combined deposits of their metropolitan areas. The proportion of District deposits held by banks in the other metropolitan areas varied from 6% in Richmond to 0.6% in Durham. In addition to the metropolitan areas, there w ere five other major deposit centers: Frederick, W ashington, and A llegany Counties in M aryland and Harrison County in West Virginia, each with deposits of between $70 million and $80 million, and Charlottesville, V irginia, with deposits of over $85 million. As the deposit size ranges decreased $60-$70 million, $50-$60 million... $20-$30 million the number of counties and cities in each became progressively larger. Only two areas (Mercer County, West V irginia, and Danville, Virginia) had deposits of from $60 million to $70 million. In four counties (Spartanburg, South Carolina; Gaston, North Carolina; Wood, West V irginia; and Wicomico, M aryland) deposits w ere between $50 million and $60 million. By far the greatest number of District counties and cities nearly 250 had deposits of less than $20 million, and in approxim ately one-third of these deposits w ere below the $5-million m ark. At the very lowest end of the scale stood four counties in V irginia and North Carolina w here deposits amounted to less than $1.5 million. Approxim ately 5% of United States bank deposits w ere held by Fifth District banks. Demand deposits of individuals, partnerships, and corporations comprised just over one-half of the District total, their time deposits about one-third. The rem aining portion, about one-sixth, w as m ade up of government and interbank deposits. *ln this survey, deposits of branches were reported according to actual location of the branch offices.

7 rtk Deposits $50 MILLION STANDARD METROPOLITAN STATISTICAL AREAS

8 8 On November 28, 1961, P resident K ennedy issued an executive order stopping T reasu ry sales of silver. In so doing he focused public attention on an aspect of this country s m onetary system which over the past quarter-century has been of interest chiefly to m onetary technicians and to a handful of silver-p ro ducing states. W h at w as behind this Presidential move, and w hat is its im plication for the future of this country s m onetary system? A nsw ers to these questions can be best developed in the light of the historical evolution of the role of silver in this countr y s m onetary structure. EARLY SILVER M ONEY Silver provided most of the m etallic m oney in use in this country until the 1830 s. S ilv er coins from abroad, chiefly from Spanish A m erica, found their w ay into this country via trade and even after the founding of the U. S. M int in 1793 provided the chief m etallic circulation. Some w ere recoined into standard A m erican silver dollars and fractional silver coins, but large quantities rem ained in circulation and in bank reserves in their original form. The predominance of Spanish silver money in early A m erican m onetary experience is reflected in this country s adoption of the Spanish dollar rather than the E nglish pound or shilling as the standard m onetary unit. BIMETALLISM IN THE UNITED STATES T his country s first m onetary law s, datin g from the early 1790 s established a bim etallic system, basing the country s money on both silver and gold. The standard dollar w as defined as equal to grains of gold or grains of silver, and both m etals were coined at the U. S. M int on a free and unlim ited basis. T he provisions of the first coinage law made an ounce of gold 15 tim es (371.25^-24.75) more valuable than an ounce of silver for m onetary purposes. In the open m arket, however, gold in this period commanded n early 16 tim es its w eight in silver. Consequently, owners of gold fared better bv selling this m etal on the m arket than by sending it to the M int for coinage. M oreover, it w as profitable to sell gold coins for their m etallic content. Thus the owner of $1,000 of gold coins could m elt this coin into bullion, sell it on the m arket, and use the proceeds to buy silver w hich could be coined into roughly $1,060 at the M int. U nder these circum stances, which illu strate the principle fam iliar to m onetary students as G resham s L aw, gold coins w ere soon driven from circulation, leaving silver as the only m etallic m oney. U ntil 1833 gold m oney w as rarely seen in this country. Coins in circulation and in bank reserves w ere chiefly silver, and m any of these w ere of foreign origin. To encourage the use of gold as m oney, Congress in the 1830 s reduced the gold content of the dollar by about 6%, to grains. T his m ade gold worth alm ost 16 tim es its w eight in silver at the M int, corresponding roughly to the relative valuation of the two m etals in the open m arket. The incentive to use gold as m oney w as thus restored. For the next 15 years gold and silver coins circulated side by side, w ith little incentive for either the one or the other m etal to be w ith draw n from m onetary use. SUBSIDIARY SILVER T his situation w as changed by the great gold discoveries in C alifornia and A u stralia at m id-century. L arg e new supplies soon reduced the value of gold on the open m arket, and in the early 1850 s gold commanded only a little more than 15 tim es its w eight in silver, as com pared w ith 16 tim es at the M int. T his reversed the situation existin g between 1790 and It now became profitable to sell silver coins on the m arket for their bullion value. B y 1853, silver coins had v irtu ally d isap peared from circulation. T his created a critical shortage of sm all change w hich serio usly inconvenienced retail trade. To rem edy this situation, Congress passed in 1853 the Subsid iary S ilver Coinage A ct, which reduced the silver content of fractional coins by enough to elim inate the incentive to sell these coins as bullion. F ree coinage of fractional silver coins w as abolished, and the T reasu ry w as given the task of providing these coins at its own initiative from silver bought in the open m arket at p rev ailin g prices. The standard silver dollar continued to be coined for 20 years after H ow ever, the silver content of grain s could be sold on the m arket for $1.02 to $1.04 in this period, and m any silver dollars were sent abroad for sale in the bullion m arkets of Europe and the F ar East. Recognizing this situation, Congress in 1873 dropped the silver dollar from the list of coins e lig i ble for free coinage and provided for the issue of a special silver coin the so-called trad e dollar for export. Sh o rtly afterw ard, the legal tender power

9 of all silver coins, including the silver dollar, was lim ited to $5.00. These Congressional actions d rastically altered the position of silver in the m onetary system. Silver could now he introduced into the money supply on a lim ited hasis only and in the form of coins whose face value was greater than their value as bullion. M oreover, these coins had only lim ited legal tender rights. B y contrast, gold coins could he introduced in unlim ited am ounts, had unlim ited legal tender rights, and were of a face value equal to their value as bullion. For practical purposes, the nation was now on a gold standard, w ith silver in a decidedly sub sidiary role. THE "CRIME" O F '73 The 1873 change found much support am ong disillusioned observers of the country s experience under bim etallism. N evertheless, it aroused little public attention at the time. Soon afterw ard, however, tbere began a sequence of events which in the course of ten years was to m ake this one of the most controversial Congressional actions of the late nineteenth century. F irst in this sequence w as the discovery and e x ploitation of rich new silver veins after Concurrently, a number of European countries, like the U nited States earlier, reduced silver to a subsidiary status in their money system s. At about the same time, India and China, long im portant silver buyers, began to reduce their purchases. T his combination of increased supply and reduced demand drove the price of silver down sharply. The bullion value of the silver dollar declined from approxim ately $1.03 in the early 1870 s to under 70 cents in the e arly 1890's. U nder these circum stances, owners and producers of silver would have realized large benefits from the right to coin silver freely at the old rate. M oreover, given this right, silver would flow to the M int in great quantities, and the money supply would grow com m ensurately. The 1873 A ct dropping the silver dollar from the coinage list thus proved a frustration both to silver-producing interests and to im portant political groups favoring inflation. W ith these groups, the Act of 1873 soon became the Crim e of 73. T his became a rallyin g cry for one of the most im portant popular movements of the late nineteenth century, the F ree S ilv er M ovem ent. THE SILVER ISSUE The Free Silver Movement aim ed at restoring free coinage of the silver dollar at a rate of grains. The movement found its greatest support in the m idwest and the west and enlisted not only the silver-producing interests and the inflationists but also m any who believed that a bim etallic system w as superior to a single standard. W hile failing in their larger aim, Free Silver supporters w ere instrum ental in securing passage of two im portant silver purchase acts : the B lan d -A llison Act of 1878 and the Sherm an Silver Purchase Act of U nder the provisions of these acts the T reasu ry bought lim ited am ounts of silver and introduced it into the money supply at grain s to the dollar. U nder the first Act, sligh tly over $300 m illion of new S ilve r certificate s p a yable to b earer on dem and w ere issued ag a in st silver d o llars coined under p ro visions of the B land-a lliso n Act of 1878 and placed on deposit w ith the Treasurer of the United States. Certificates proved more convenient than the heavier silver pieces. 9

10 10 SILVER PRODUCTION SILVER CONSUM PTION M il. Fine O z. M il. Fin e Oz. M il. Fine Oz. M il. Fine O z. Total Free World Free World Total United States Coinage Free World / s \ " J 1 I I I * P re lim in a ry I I960 Coinage w ^ United States \ * Free w orld production of silver has increased in recent years but has lagged behind com um ption. United States output has fallen off. As the w orld 's chief user of silver, the United States has reg ularly accounted for one-half or more of total free w orld consumption. silver m oney w as created, chiefly in the form of silver certificates such as those shown on the preceding page, which w ere issued against silver dollars held in T reasu ry vaults. U nder the second A ct, some $150 m illion of T reasu ry Notes of 1890 w ere issued in paym ent for silver w hich w as then stored in T re asury vaults. The silver money introduced by these A cts was som ething of an oddity, for it w as in practice re deemable in gold. Efforts by holders to redeem it figured in the P anic of 1893, during which the new silver purchase policy w as abandoned. The F ree S ilv er M ovem ent reached a clim ax in the presidential election of 1896, when the m ovem ent s champion, W illiam Jennings B ryan, w as decisively defeated by W illiam M ck in ley. N ew gold discoveries in A laska and South A frica in the 1890 s opened up the prospect of m onetary expansion on a gold base and cut much of the ground from under the silver inflationists. In 1900 Congress placed this country definitely on a gold standard, form alizing the end of the F ree Silver M ovement. SILVER'S ROLE, Since 1900 silver lias figured in the m onetary system p rim arily as a subsid iary coinage m etal. Between 1900 and 1933 silver money took the form of fractional coins and silver dollars and silver certificates issued under the pre silver purchase acts. Some T reasu ry notes of 1890, w hich w ere m uch the sam e as silver certifi- cates, also circulated. L im itations w ere placed upon the legal tender rights of silver money, however, and law required the S ecretary of the T re asu ry to m ain tain all forms of silver money at p arity w ith standard gold money. Gold m oney w as the only standard money by law, and only gold possessed full legal tender rights. Silver served the subsidiary role of providing, for the public s convenience, fractional coins and sm all-denom ination currency. In this period, silver figured in public policy only briefly at the close of W orld W a r I. A critical silver shortage in the years led to passage of the Pittm an A ct, which authorized the T reasu ry to retire silver certificates and to supply the silver thus released to the m arket. U nder this authorization, the T reasu ry retired some $270 m illion of silver certificates. M ost of the T reasu ry silver freed by this move w as sold to G reat B ritain to help that country w ard off m onetary disturbances in India. P art, however, w as supplied to m arkets in to keep the price of silver from risin g to levels which would m ake it profitable for private citizens to sell silver coins in the bullion m arket. T his crisis passed quickly, however, and by 1921 silver prices w ere fallin g rap id ly. The silver certificates retired under the Pittm an A ct w ere replaced in the 1920 s. The T reasu ry purchased silver at $1.00 an ounce, well above the m arket price, to make the replacem ent.

11 SILVER POLICY SINCE 1934 The G reat D epression of the 1930 s provided the occasion for the last m ajor change in U nited States silver policy. The F ree Silver program, along w ith num erous other proposals for m onetary reform, cropped up again tem porarily in this period. In 1933 Congress authorized the President to re-establish bim etallism, but this authority w as never exercised. The President chose rather to em ploy an alternative authority to buy silver in the open m arket and to monetize it on a lim ited basis. In 1934 Congress passed the Silver P urchase A ct which, as amended in 1939 and 1945, provides the legislative basis for all T reasu ry action respecting silver since that time. The 1934 A ct directed the T reasu ry to add to official stocks of silver through purchases at home and abroad until the m onetary stock of silver equaled one-third that of gold. The T reasu ry could pay no more than 50 cents an ounce for silver located in the U nited States on M ay 1, 1934, and no more than the m onetary value of silver ($1.29-)- per ounce) for silver from an y source. Sub sequent amendments raised the T reasu ry s purchase price for dom estic silver, first to and then to 90.5 cents. FREE SILVER The T reasu ry s stocks of silver never achieved the proportion to gold envisaged in the 1934 Act. B ut since that year the T reasu ry has bought more than 3 billion ounces of silver at an average price w ell under the m etal s m onetary value. The silver dollar contains about three-fourths of an ounce of silver, and a dollar s worth of fractional silver coins contains still less. This m eans that an ounce of silver can be converted into m oney by the T reasu ry at a rate of between $1.29 an ounce to $1.38 an ounce. H ow ever, the T reasu ry has followed the policy of m onetizing silver at cost rather than at the higher rates allow ed by law. Thus, an ounce of silver purchased at 90.5 cents is converted into exactly 90.5 cents worth of m oney. W ith existin g coinage law s, however, this much silver money can be supported by only about tw o-thirds of an ounce of silver. The rem aining one-third ounce is thus not needed as m onetary backing and becomes w hat is called free silver. M illions of ounces of free silver w ere piled up by the T reasu ry in the first 25 years of operations under the Silver Purchase A ct of The silver purchase law s authorized the T reasu ry to sell this free silver in the open m arket at a price not below 90.5 cents an ounce, plus handling. com m ercial price of bar silver in New Y ork averaged about 35 cents. In 1939, when the T re a su ry s p u r chase price w as raised to cents an ounce, the m arket price w as under 45 cents. P ressu re of w a r time demand raised the price in the early 1940 s to around 50 cents. In 1946, the official price w as raised to 90.5 cents, and the m arket price for that year rose to an average sligh tly above 80 cents. It receded from this level in the late 1940 s but began to rise again in B y 1956 it approxim ated the T reasu ry s buying price, and in 1959 it moved above this level. T hese movements in price reflect, of course, changes in the over-all supply and dem and situation in the m arket for silver. Supplies w ere large relative to demand in the 1930 s, and had it not been for the T reasu ry s purchases prices would have been below the cents range prevailing in most of that decade. Since W o rld W a r II, however, the in dustrial demand for silver has increased as new uses for the m etal have developed. M oreover, since 1950 m ajor countries abroad have m ade increasing use of silver in their coinage. Consum ption has outpaced production since 1950, and the upw ard trend of prices represents a response to this situation. OUTPUT AND USE IN THE 1950's B y the end of the 1950 s annual consumption of silver in the free w orld exceeded production by over 50%. Annual consum ption in com m ercial and in d u strial uses rose Free stocks fell below 25 million ounces in late Rem aining T reasu ry silver is needed to support outstanding ce rtificate s. SILVER PRICES U ntil recently, the T re a su ry s p u r chase price for silver has been well above the free m arket price. In 1933, the year in which the T reasu ry began b uyin g silver at cents an ounce, the 11

12 12 from m illion ounces in 1950 to m illion ounces in T he rate of increase of silver consumption in coinage w as even greater, free world coinage system s raisin g their annual consumption from 44 m illion ounces in 1950 to 86 m illion ounces in Total free w orld consumption in 1960 am ounted to roughly 320 m illion ounces, as compared with production of approxim ately 203 m illion ounces. B y far the largest single consumer of silver in the free w orld is the U nited States. O ver the past ten years, annual U nited States consumption in industry and the arts has averaged around 100 m illion ounces. Consumption in coinage operations has run 40 to 50 m illion ounces annually. T otal consumption in this country in 1960 came to 146 m illion ounces, ju st short of half the total for the entire free w orld. Free w orld production of silver has actu ally declined since the late 1930 s. A verage annual production of under 200 m illion ounces in the 1950 s com pares w ith an annual average of over 250 million ounces in the late 1930's. Production has fallen off especially rap id ly in the U nited States, declining from an annual average of some 65 m illion ounces in the late 1930 s to about 35 m illion ounces in the 1950 s. Two im portant sources of silver have made up the excess of consumption over production and have tem pered the price increase. One of these is the T reasu ry stocks of free silver, which have been sold in large quantities since 1958 at about 91.5 cents an ounce. The other is large and long-standing hoards of silver in R ed China. T he Red Chinese government has sold m illions of ounces in recent months as a m eans of earning foreign exchange with which to p ay for food im ports. The P residential proclam ation of November 28 halted sales of free silver and form ally closed that source. A t present, the second source is of questionable m agnitude, but it is clear that Chinese silver hoards, however large, cannot last long at the rates at w hich they have been disgorged in recent months. THE TREASURY'S SILVER STOCK U nder the arran g e ments prevailing before November 28, a m arket price for silver above the T reasu ry selling price of 91.5 cents made it profitable for silver users to buy silver from the T reasu ry rather than in the m arket. S im i larly, suppliers profited m ore by sellin g in the m arket rather than to the T reasu ry. Since 1958 the m arket price has consistently been above the T reasu ry s price, and it is not su rp risin g that the T reasu ry s silver stocks have declined. T he T reasu ry s stocks of free silver have been subjected to an especially heavy drain over the past three years. Free stocks of 202 m illion ounces at the beginning of 1959 w ere reduced to 123 m illion ounces in Ja n u ary The drain accelerated d u r ing the year, and in late N ovem ber free silver holdings w ere under 25 m illion ounces. T h is drain provided the backdrop and the im m ediate occasion for the P resid en t s order stopping T re asu ry sales. MONETARY IMPLICATIONS B ecause of the subsid iary position of silver in the U nited S tates m onetary system, these developm ents in the silver m arket have no serious im plications for the co un try s m onetary system. H ow ever, they w ill require some action in addition to the proclam ation halting sales of free silver. The A dm inistration has indicated that it w ill seek repeal of the Silver Purchase A ct and restoration of a free m arket for silver. A dequate supplies of silver to meet coinage requirem ents can, and probably w ill, be provided through retirin g silver certificates. Such a move would w ork only a m inor change in the co un try s m oney system. T he silver certificates w ith draw n can be easily replaced w ith other form s of currency, notably with F ederal R eserve notes, which account for more than 80% of outstanding currency and coin in the country. Such replacem ent would free alm ost 2 billion ounces of silver now held by the T reasu ry, and at present rates of usage this am ount would meet U nited States coinage needs for perhaps 40 years. Even if only the higher denom ination silver certificates w ere replaced by F ederal R eserve notes, the T reasu ry silver freed (an estim ated 410 m illion ounces) would meet coinage requirem ents at present rates of visage for perhaps eight years. T hus, there is no reason to expect an y curren cy or coinage difficulties as a re sult of the present situation. R eplacing silver certificates by F ederal R eserve notes would have one effect w orthy of some atten tion. Since F ederal R eserve notes require a 25% gold backing not required for silver certificates, such a replacem ent would increase the am ount of gold needed to support the outstanding m oney supply. T his would, of course, correspondingly reduce the excess am ount of gold available to meet claim s of foreigners on the dollar. PHOTO CREDITS Cover Metropolitan Washington Board of Trade 3. State of Maryland, Department of Economic Development; Virginia State Ports Authority 4. Kaiser Aluminum & Chemical Corporation 4. & 5. North Carolina Department of Conservation and Development 5. Owens-Corning Fiberglas 9. Colonial Studio.