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Silver:
End of an Era
WILLIAM and YVONNE
BURKE
LEVY
Federal Reserve Bank of San Francisco
MONTHLY REVIEW SUPPLEMENT
Revised November. 1973
Surpl
· •. The Populist movement of the I890's and the New Deal of the 1930's
both used silver legislation to combat falling prices-and both failed.
• .. Finally, the market accomplished what a century's legislation
could not do for silver's cause, as demand and prices soared.
• ,. Demonetization was achieved by June, 1968: prices slumped for a while,
but then soared again du.ring the speculative boom of the 1970's.
· •• Western mines have suffered a long-term production decline, although
the price upsurge of the 1960's helped spur renewed mine activity.
2
Populist orators, finding no rational explanation for the grinding deflation that
racked the nation's economy before the turn
of the century, argued that hard times were
the result of a monstrous conspiracy organized by London bankers and their Wall Street
minions. When asked for evidence, these orators automatically cited the "Crime of 1873"
-the (temporary) demonetization of silver.
"A crime, because it has brought tears to
strong men's eyes and hunger and pinching
want to widows and orphans. A crime because
it is destroying the honest yeomanry of the
land, the bulwark of the nation. A crime because it has brought this once great republic
to the verge of ruin, where it is now in imminent danger of tottering to its fall." (Coin's
Financial School)
The Populists denounced this "crime" so
fervently because they equated the dethronement of silver with a deliberate policy of deflation. In their eyes, the "crime" was compounded in 1900 with the formal adoption
of the gold standard, and it was only partly
assuaged in the 1930's with the discarding of
gold as a domestic means of payment and the
adoption of a silver-purchase program.
Yet in the late 1960's, when the Treasury
ceased redeeming silver certificates in silver,
and when it began to mint its quarters and
dimes out of baser metals, few observers if
any suggested that the republic was on the
verge of ruin. Aside from a few nostalgic
editorials, the news of this final dethronement
of monetary silver was confined to the financial pages.
Perils of success
The nation easily survived this latest episode
in silver's checkered career, in large part because the turn-of-the-century monetary battles
had eventually led to the enactment of the Federal Reserve Act, and thus to the institution of
flexible methods of monetary control. But more
to the point, this time it was silver's rebirth as
an industrial and artistic material that contributed to its problems as a monetary metal.
Silver prices almost tripled between 1960 and
the 1968 peak, and they doubled just between
mid-1967 and mid-1968. Speculative pressures
eased over the next three years, so that prices
fell back again to the mid-1967 level. By late
1973, however, prices had soared to new peaks,
in response to a worldwide industrial boom and
heavy speculative demand associated with a series of international financial crises. Basically,
however, the upward price pressures of the past
dozen years have reflected the deficit in the
major sources of supply - Western mines and
3
Treasury stockpiles - in relation to the significant increase in the worldwide demand for silver. The white metal has very impressive physical characteristics; it is foremost in electrical
and thermal conductivity, highest in optical reflectivity, and second only to gold in ductility.
Silver in recent years has gained new luster
among dentists as well as debutantes, and
among spacemen as well as shutterbugs.
The latest episode, in brief, has been closely
involved with the metal's extremely strong price
performance of the past decade. The major episodes in silver's earlier monetary history, by
way of contrast, were products of prolonged
price declines for silver, and for everything else,
in the Great Depression of the 1890's and the
even greater catastrophe of the 1930's. So, just
as the "Crime of '73" epitomized the earlier
time of monetary troubles, the virtual repetition
of that act typifies a performance of a somewhat
different kind.
Now that a major chapter in silver's long,
emotion-drenched monetary history has come to
a close, some perspective may be gained from
a review of the legislative highlights. The record dates back to 1792, when the new nation set
up two units of value: a gold dollar containing
24.75 grains of pure gold and a silver dollar
containing 371.25 grains of pure silver.
developed because of the implacable workings of Gresham's Law. Although the relative values of the two metals at the mint were
constant by legal definition, the relative values
in commodity markets fluctuated continuously,
producing "bargain" prices at the mint now
for one metal and again for the other; the
metal that was overvalued at the mint consistently drove out of monetary use the metal
that was undervalued for such purposes.
The original 15·1 mint ratio of silver to
gold (by weight of equivalent value) was
below the market ratio existing at that time,
and the consequent gold outflow tended to
make silver the nation's standard money until
the 1830's. Gold was then revalued, however,
and the resultant 16·1 mint ratio caused a
reversal of the situation and led to a disappearance of silver.
Greenbacks and Gresham
Then came the Civil War-and then came
the losing thirty.year battle on the part of
debtor groups to maintain prices at the high
wartime levels at which they had contracted
their debts. The postwar price decline had
developed partly because of the cessation of
the war-induced demand for commodities and
partly because of the sudden buildup in farm
surpluses resulting from the rapid expansion
of the trans-Mississippi West-but also because of a shift in monetary policy toward
contraction of the paper currency and resumption of specie payment.
The struggle of Populist farmers and other
debtors to restore wartime price levels through
currency inflation was led initially by the
Greenbackers. That doughty group, which
demanded the redemption of war bonds in
paper and not in gold, suffered a crucial defeat when the Administration resumed specie
payments in 1879. But even before that event,
the inflationists had arrived at the view that
they could attain their ends by injecting
silver into the monetary system at an inflated
ratio.
Silver's monetary value of $1.2929 per
ounce, although not defined in such terms
in the law, could be derived by dividing the
number of grains in an ounce (480) by the
number of grains of pure silver in the silver
dollar (371.25). Silver's monetary value was
still measured in the same way in the 1960's,
but that apparently was the only sign of sta·
bility that could be found in the metal's vola·
tile behavior.
The Founding Fathers-specifically, Alex.
ander Hamilton-had opted for a bimetallic
standard, with the unit of account and all
types of money kept at a constant value in
terms of gold and also in terms of silver.
Practically. however. an alternating standard
4
The price of silver dropped to $0.94 within
the following decade, so the inflationists demanded that more be done. This time the best
they could accomplish was the. passage of the
Sherman Silver Purchase Act of 1890, in a
trade whereby Westerners voted for a tariff
bill which they disliked while Easterners
voted for a silver bill which they feared.
The Sherman Act directed the Secretary
of the Treasury to buy 4.5 million ounces of
silver bullion - almost the entire domestic
production--every month. The bullion was to
be paid for through the issue of new legaltender Treasury notes, which were to be redeemable in either gold or silver-a provision
which permitted an "endless chain" of gold
withdrawals in the panic of 1893.
Despite these efforts, the Sherman Act did
not succeed in its purpose. It failed to raise
the price of silver, and moreover it failed to
increase the amount of money in circulation
and to reverse the steady decline in farm
prices. (Senator Sherman's influence obviously was far more lasting in the antitrust field.)
President Cleveland and other gold supporters wanted to abandon silver to its fate
and to adhere formally to the gold -standard.
The silverites, on the other hand, continued
to favor the unlimited coinage of silver and
the pegging of the silver price at the traditional 16-1 ratio. For a while, Cleveland had
his way; faced with the panic of 1893 and
with a substantial gold outflow which reduced
the gold reserve below the tacitly recognized
floor of $100 million, he forced through
Congress the repeal of the Silver Purchase
Act. Yet this led to his repudiation by his own
party and to the mighty Populist upsurge
which in 1896 brought William Jennings
Bryan to the verge of the Presidency.
In accordance with Gresham's Law, silver
at the 16-1 mint ratio had been undervalued
and had long since disappeared from circulation. In fact, such a long time had elapsed
since any silver had been presented to the
mints for coinage that Congress in 1873
stopped the further minting of the standard
silver dollar, and thereby effectively demonetized silver. Whether deliberately or through
oversight, Congress simply failed to include
in a long, very detailed and technical revision
of the coinage laws any provision for the
continuing coinage of the standard (371.25grain) silver dollar. Thus was the "Crime of
'73" perpetrated.
No cries of outrage greeted the event at
the time it occurred, since every ounce of
silver was then worth $1.30. But within three
years the situation altered drastically: the
price of silver dropped to $1.16 and below, on
the heels of a glut occasioned by the opening
of new mines in Nevada and the closing of
silver markets in the new gold-standard countries of 'Western and Southern Europe.
Cross of gold
The Populists cried conspiracy, for if silver
could have been coined freely at the old 16-1
ratio the debtors could have paid their debts
with the easier-to-earn white metal. In order
to repair the ravages of the crime, therefore,
these inflationists demanded that Congress
restore the free and unlimited coinage of
silver at the old 16-1 ratio.
The best they could obtain, however, was
the passage of the Bland-Allison Act of 1878,
which required the Treasury to buy not less
than $2 million of silver every month for coinage or for backing of silver certificates. But
the net increase in currency, which amounted
to $253 million in the 1879-90 period, failed
to match the hopes of the backers of this
legislation: the new silver certificates simply
took the place of national bank notes which
were being retired in connection with the reduction of the national debt.
Gold triumphant
Nonetheless, within four years the money
question was no longer at the center of public
controversy-in fact. was hardly in the public
eye at all. Early in ] 900 the victorious "gold-
5
bugs" secured the passage of an act providing
that the gold dollar of 25.8 grains nine-tenths
fine should be the unit of value and that all
other forms of currency should be maintained
at parity with this dollar. (Parity was to be
maintained through a $150-million gold reserve which the Treasury would hold available
for the redemption of paper money.) Then,
later in 1900, Bryan's second defeat sealed the
doom of silver as a dominant political issue.
The issue died out simply because of the
long-awaited reversal of the downward trend
in prices. Between 1896 (the low point) and
1914, the general price level increased 40
percent. But inflation and farm prosperity
were achieved not through the Populists'
chosen instrument, silver, but rather through
several unexpected developments
developments related to the metal which they detested
(gold) and to the center of the gold "conspiracy" which they despised (the city).
New gold discoveries in South Africa and
North America, along with the development
of new processes for extracting the precious
metal from the ore, flooded the world with
gold during these critical years. Over two
decades, the amount of gold coinage increased
by half, and thereby permitted a corresponding expansion of the currency supply. After
1896, therefore, the gold inflation helped
bring about the happy situation which the
farmers for so long had tried to win with
silver. The evidence was apparent on every
hand-wheat rising from 72 cents a bushel
in 1896 to 98 cents a bushel in 1909, corn
rising from 21 cents to 57 cents, and so on
throughout the list.
But the American city itself, and not simply
the gold inflation, saved the American farmer.
Throughout that golden age, the foreign mar·
ket for many of his products sharply declined.
Yet his income situation sharply improved,
because of the very thing that was cited as
evidence of his political submergence-the
great increase of the urban population. In
1890, 4.6 million American farms supplied
a domestic urban population of 22 million;
in 1910, 6.4 million farms supplied 42 million
city-dwellers. The larger, more efficient, and
more mechanized farms which developed over
6
those two decades produced an increasing
part of their total produce for the home
market (and less for the foreign market),
tmder far stabler and more advantageous con·
ditions of transportation and finance than
had prevailed in the past. And yet this favorable trend-labeled "From Pathos to Parity"
by one historian-was achieved without any
aid whatsoever from the Populists' favorite
weapon, silver inflation.
brought forward as a supplement to the incomplete gold inflation-and as an answer to
the perennial legislative demand to "do some·
thing for silver."
Since 1873, the downward trend in the
price of silver had been interrupted only twice,
during the silver-purchase period around 1890
and again during WorId War I. After the
turn of the century, in fact, the market price
rarely exceeded one-half the nominal mint
value.
Silver had remained in a monetary limbo
with respect to new acquisitions; some was
used for subsidiary coins, some circulated in
the West in the form of standard silver dollars, and a roughly fixed stock of silver
certificates remained as a relic of the 1890's.
Thus., by the 1930's, only about 650 million
ounces were in use as coin or as currency
backing at the Treasury.
Gold forlorn
The second major development in silver's
dramatic history occurred in another major
period of deflation-the 1930's. Once again
a movement arose to halt a prolonged defla·
tionary spiral by restoring currency values
to the level at which wartime and postwar
debts had been contracted. And once again
a remedy was proposed, in the Thomas amend·
ment to the Agricultural Adjustment Act of
1933, that envisioned both the printing of
more paper money and unlimited coinage of
silver. The Amendment, in addition, authorized increased open.market purchases of Government securities and a reduction in the gold
content of the dollar.
The last-named of these alternatives reo
ceived the most emphasis in early New Deal
days. Under the authority of the Gold Reserve
Act of 1934, the value of the dollar was offi·
cially fixed at 59.06 percent of its formerly
established (1900) value in terms of gold.
But much to the surprise of the theorists
who influenced the Administration's decision
-theorists who posited a close relationship
between the price level of commodities and
the gold content of the monetary mediumthe price level did not automatically respond.
True enough, the wholesale price index increased somewhat in line with the general
expansion of demand following the Depression low, but the increase was only about
half of what the inflationists expected in view
of the 41-percent reduction in the gold content
of the dollar. Silver inflation, therefore, was
Silver, silver everywhere
At the end of 1933, with the market price
of silver standing at about $0.44 an ounce75 percent above the Depression low-unlimited purchases of newiy mined silver were initiated at $0.6464 cents an ounce under the
authority granted by the Thomas amendment.
But inflationist pressure then brought about
even further action, in the form of the Silver
Purchase Act of 1934. Under its terms, the
Secretary of the Treasury was directed to
purchase silver at home and abroad until the
market price reached the traditional mint price
of $1.2929 an ounce, or until the monetary
value of the Treasury's silver stock reached
one-third of the monetary value of its gold
stock. The support price at which purchases
were made was changed on several different
occasions during the ensuing dozen years;
originally $0.6464, it was eventually set at
$0.9050 in 1946.
Under the authority of the silver-purchase
legislation of the 1930's and subsequent Presidential proclamations, the Treasury acquired
some 3,200 million ounces of silver-about
7
Millions of Troy Ounces
Millions of Troy Ounces
o
/955
400
'00
600
PRODUCTION
400
CONSUMPTION
1965
300
Coinaqe
200
1970
1972
1955
1960
1965
1970
In little over a quarter-century, the Treasury
purchased $2 billion in silver and sextupled
the physical quantity used as currency or held
in stockpiles. Nevertheless, the silver program
during that period failed to achieve either of
the objectives specified in the 1934 Silver
Purchase Act: a market price equal to the
monetary value of $1.2929, or a I-to-3 ratio
of the monetary stocks of silver and gold.
Prior to the 1960's and to the upsurge of
world demand, market pressures failed to
push prices above the $0.9050 floor. Meanwhile, the ratio of monetary silver to monetary gold stocks-both at tbeir nominal monetary values-failed to reach the I-to-3 target
figure. (The ratio ranged around I-to-5 in
the prewar period, then rose to I-to-7 as a
consequence of the early postwar gold inflow,
and finally dropped to I-to-4 during the following decade as gold began to flow out instead of in.) Then, when silver's supporters
achieved the price upsurge they wanted, it
turned out to be a mixed blessing indeed.
half of it in the four-year period 1934-37, and
the remaining half in the subsequent quartercentury. A minor part (about no million
ounces) consisted of silver that was "nationalized" in mid-1934, when the Administration
required nonmonetary silver to be turned in
at $0.5001 per fine ounce, so as to capture
the profits expected to be realized from the
increased government purchase price. About
2,210 million ounces consisted of metal purchased abroad at prevailing market prices,
and the remaining 880 million ounces consisted of newly mined domestic silver.
Until 1955, the Treasury support price for
newly mined domestic silver was higher than
the market price, so die U. S. Government
purchased domestic metal at the higher price
while U. S. silver-using industries purchased
low-priced foreign metal. But from 1955 to
late 1961, the market price approximated the
support price, and silver users then began
to purchase some supplies from the Treasury
as well as from foreign and domestic mines.
8
The legislative stage was thus set for the
beginning of the final act. In November 1961,
President Kennedy wrote Treasury Secretary
Dillon, "I have reached the decision that silver
metal should gradually be withdrawn from our
monetary reserves"-and with that, he instructed the Secretary to suspend further sales
of the Treasury's free silver, to suspend the
use of free silver for coinage, and to obtain
the silver required for coinage needs through
the retirement from circulation of $5 and $10
silver certificates. By this measure, some 400
million ounces of the total reserve of 1,700
million ounces were released for coinage purposes. (Interpreting the President's statement
as a Treasury withdrawal from the supply
side of the market, the market responded with
a lO-per<:ent jump in price the very next day,
and with a further 30-percent rise the following year.)
The next scene occurred with the passage
of Public Law 88-36 (June 1963). The Act
repealed the Silver Purchase Act of 1934 and
subsequent silver legislation, repealed the tax
on transfers of interest in silver bullion, and
confirmed the redeemability of silver certifi-
Eventually, the market accomplished what
a century's legislation could not do for the
cause of silver price support. In the late
1950's, world consumption of silver increased
about 4 percent annually, while world production rose only about 1.5 percent annually.
Sales from Treasury stockpiles filled the gap
-and held the price line-for almost a decade, but the depletion of stocks finally brought
the process to a halt.
The first scene in a long drawn-out final
act occurred in late 1961. By that time, the
worldwide industrial and coinage demand for
silver approximated 300 million ounces annually, about half of which was American
demand, whereas worldwide production approximated 235 million ounces annually,
about one-sixth of which was from American
mines. The gap had to be filled by sales from
the Treasury's "free silver" stocks-that is,
stocks that were not earmarked for currency
hacking or coinage.
Beginning of the end
The Treasury's supply of free silver had
reached its peak in early 1959 at 222 million
ounces. But by the end of 1960, half that
supply was gone and by late 1961, only 22
million ounces were left. There remained,
however, nearly 1,700 million ounces in a
bullion reserve held against the issuance of
part of the nation's paper currency. About
one-fourth was held against $5 and $10 silver
certificates, and the remainder was used to
support $1 and $2 silver certificates. The
larger denominations could have been issued
in the form of Federal Reserve notes, but thenexisting legislation authorized only silver certificates for the smaller denominations.
9
cates for silver dollars or bullion at the monetary value of $1.2929 an ounce. But in particular, the Act authorized the issuance of
Federal Reserve notes in the smaller denominations, thereby providing for the eventual
elimination of silver as backing for $1 and $2
bills. The new policy, in effect, "provided for
the eventual demonetization of silver except
for its use in subsidiary coinage."
Many of them went into circulation by early
March, and then, when the House Appropriations Committee rejected a Treasury request
for authorization to begin minting these pieces
again, the rush was on. In two weeks' time
the Treasury shipped out more than II million
pieces to the tradition-loving Western states
-and meanwhile distributed more than 3 mil·
lion pieces to a jostling, haggling crowd which
besieged the Treasury building in search of
choice "Morgan" dollars of turn-of·the-cen·
tury vintage.
Only 2.9 million "cartwheels" were left
when, in the Wall Street Journal's description,
"Secretary Dillon drove the money changers
out of his temple." Exercising the option open
to him under the terms of the 1963 legislation,
the Secretary decreed that silver certificates
thenceforth would be redeemable only in silver
bullion at the monetary value of $1.2929 per
ounce. Holders of silver certificates could
continue to exercise their legal right to demand an amount of silver precisely equal to
the silver content of a standard silver dollar,
but they would be assured ·of getting only
several slivers of metal in an envelope instead
of a coin of considerable numismatic value.
Silver rush of 164
In Congressional hearings which preceded
the passage of this new law, Secretary Dillon
argued that the new legislation would not
mean the disappearance of the silver dollar,
since the Treasury had ample supplies of
"cartwheels" and other traditional coins. But
the market felt otherwise, and soon thereafter
staged the dramatic epilogue to the Act of
1963-the great silver rush of '64.
Part of the explanation was the inability
of the Philadelphia and Denver mints to keep
up with the public's burgeoning demand for
coin. The amount of circulating coin, which
had increased roughly 50 percent in the first
postwar decade, more than doubled in the
following decade because of the heavy toll
levied by vending machines, sales taxes, school
lunches, parking meters, and coin telephones
-and because of the insatiable demands of
the growing band of coin collectors and speculators.
The mints, intent 011 supplying the public
demand for minor coin, had not minted standard silver dollars during the entire post-war
period; in fact, the last of these "cartwheels"
came out in 1937. Yet, for some time, there
appeared to be no problem. Out of a total
supply of 485 million silver dollars, about onethird were circulating in 1950, and about
two-thirds in 1960. But then the outflow increased sharply, and accelerated even more in
the months following the enactment of the
new silver legislation.
Only 28 million "cartwheels" were left in
Treasury hands at the beginning of 1964.
MIllions 'of OUllC"
500
400
300
200
100
10
Rolio SClile
Still, most observers continued to feel that
silver dollars represented only a special case,
and that a silver shortage was practically out
of the question in the foreseeable future. In
his 1963 Congressional testimony, Secretary
Dillon argued that, with the passage of the
proposed legislation, the Government's silver
reserves would "assure an adequate supply of
silver to meet our coinage requirements for
the next ten to twenty years." But over the
next two years alone, consumption of silver
came to exceed all earlier expectations, and
it became readily apparent that even the Act
of 1963 had failed to provide a lasting solution to the Treasury's problems.
ury stocks receded by 523 million ounces in
the five-year period, to 1,583 million ounces
in 1963.
In 1964, moreover, foreign demands actually comprised a drain on Treasury stocks,
and this country became a net exporter of
silver for the first time since the lend-lease
shipments of World War II. Total exports
during the year amounted to 110 million
ounces, more than triple the 1963 figure, while
imports declined from 64 to 55 million ounces.
In meeting both this new export demand and
the soaring domestic demand, Treasury stocks
of the metal dropped 23 percent in 1964 alone,
to 1,214 million ounces.
Growing deficit
An increase in industrial consumption of
silver-mainly for use in photographic film,
electronic components, and storage batterieshelped to intensify the growing shortage. Industrial consumption in this country, which
had dropped from an annual average of 100
million ounces in the early 1950's to 86 million ounces in 1958, rose by more than 5 percent annually over the next five years, and
then jumped 11 percent more in 1964, to 123
million ounces.
Overseas, the expansion in industrial consumption had been even more impressive,
particularly in West Germany and Japan. Between 1950 and 1958, foreign industrial consumption doubled, and by 1964 it increased
again by half, to 163 million ounces. Thus a
shortage existed from industrial demands
alone, since world industrial consumption
exceeded total mine production by 71 million
ounces in 1964.
The sharp upsurge in silver usage took
place even in the face of a 40-percent increase
in silver prices between November 1961 and
June 1963. The demand for silver evidently
was quite inelastic-unresponsive to an increase in price-because no known alternative
equaled its high electrical and heat conductivity, resistance to corrosion, and sensitivity
to light.
Production of silver in this country had
fallen short of U. S. consumption consistently
throughout the postwar period, but the gap
began to widen appreciably after 1958. In
fact, domestic production actually declined
slightly from 1958 to 1963, while domestic
consumption for coinage and industrial use
rose sharply, from 124 to 222 million ounces.
As a result, the annual deficits increased from
a sizeable 100 million ounces or so in the
1950-58 period to an even more substantial
187 million ounces in 1963. But then, in 1964,
the deficit jumped to 289 million ounces, as
production remained level in the face of a
soaring demand of 326 million ounces.
Moreover, the same type of situation existed
elsewhere, as total world consumption (outside
the Soviet Bloc) grew to more than 2% times
total new production. With total metal usage
at 556 million ounces, the world supply deficit
in 1964 amounted to 338 million ounces.
Foreign sources came to fill less and less
of the U. S. deficit over the 1958-63 period,
because of the expanding needs for the metal
abroad. At the same time, returns of lendlease silver which had been shipped out during
World War II dropped steadily, from a peak
of 103 million ounces in 1958 to zero in 1963.
In making up the growing deficiency, Treas11
rose almost 50 percent between 1959 and
1964, from 20.5 to 30.3 million ounces, and,
as a result, the electrical industry surpassed
silverware and jewelry to become silver's second largest market.
Unequalled as an electrical conductor, silver's use as an electrical contact had expanded
until it could be found in practically every
on-off switch and electrical appliance. Silverwire contact relays also were at the heart of
most computers and almost every piece of
telephone and aviation equipment. Besides,
suitable substitutes were not available for
applications accounting for perhaps threefourths of the entire market-primarily voltage connections for space-vehicle guidance
systems, military electronic systems, and the
like.
Consumption in brazing alloys and solders,
another rapidly growing field, expanded from
10.5 million ounces in 1959 to 15.8 million
ounces in 1964. During World War II the use
of silver alloys as industrial joining media
gained impetus in the manufacture of shells,
gun parts, and ordnance. After the war, silver
brazing alloys became important in air-conditioning and refrigeration equipment, electrical appliances, and automobile parts--in fact,
in virtually every end-product where joining
or bonding was involved. And entirely new
applications also arose: silver-infiltrated tungsten for rocket fuels, as well as silver brazing
alloys capable of withstanding heat and pressures generated at supersonic speeds. For these
applications, which require high-temperature
soldering, substitution of other materials was
completely impractical.
Consumption of silver in storage batteries,
a relatively new use, almost tripled between
1959 and 1964, reaching 9.0 million ounces.
Batteries utilizing silver (in association with
zinc or cadmium) can be recharged, and they
are very useful for applications requiring high
output in relation to weight, for example, in
spacecraft and portable tools and appliances.
Because these batteries rely on the chemical
Millions of Troy Ounces
o
10
20
30
40
Photoorophy
ElectrieolElectronic
Silyerwore Jewelry
Alloys-Solders
e==::re
Batteries
Other
Industrial requirements
Consumption of silver for photographic
film, plates, and sensitized paper-the largest
single market in this country for the metalincreased at an annual rate of about 2 percent
between 1959 to 1963, and then jumped 20
percent, to 40.3 million ounces, in 1964 alone.
The photographic industry's consumption
would have increased even more rapidly had
it not learned to economize on its supplies.
By extracting silver from photographic solutions used in developing film, for example, it
was able to reclaim as much as 10 million
ounces in 1964.
Under the stimulus of the sharp run-up in
silver prices, the photographic industry also
accelerated its research aimed at the development of substitutes. In -many of silver's most
important applications, however, no other material could be found with silver's unique
anility to record an image when exposed to
light. (The only major alternative was the
use of electrostatic copying methods in office
equipment.) Because silver was all but indispensable to the photographic process, its use
in this field tended to increase along with
the continued growth of the industry.
The electrical-equipment and electronics industry represented another rapidly growing
outlet. Consumption of silver in these fields
12
A new type of entrepreneur, "the money
merchant," appeared on the scene, acquiring
coins by the bagful and selling them to the
highest bidder. The American Bankers Association staged a "Calling All Coins" campaign,
in an attempt to bring to market the large
supply of coins stored in the nation's piggy
banks. And one chain of food stores conceived
of the idea of issuing scrip, in denominations
of I, 5, and 10 cents, redeemable at the company's stores. (The chain dropped the plan
when it found that it might be violating Federallaw.)
Some observers blamed the shortage upon
the growing use of some 12 million automatic
coin.operated vending and service machinesranging from parking meters and telephone
pay stations to machines that dispense hot and
cold drinks, sandwiches, candy, cigarettes,
music, and laundry and drycleaning services
-and upon the growing coin requirements
of toll roads, sales taxes, and school lunches.
Other observers simply traced the shortage
to the burgeoning demands of a rapidly growing population and a rapidly expanding
economy.
According to Treasury officials, the expansion in coin production should have been
more than adequate to compensate for all
these developments. From fiscal 1959 through
fiscal 1964, the Mint had nearly tripled the
production of coins, from 1.6 to 4.3 billion
pieces-yet during that same period, population had increased only 8 percent, gross
national product 28 percent, and vending
machine sales by 47 percent. Furthermore,
the 48 billion coins available for circulation
provided an average of 240 coins for every
man, woman, and child in the entire country.
reactance of silver, the substitution of other
materials again was impractical.
For all these reasons, the industrial demand
for silver expanded inexorably in the early
'60's, even in the face of stable or declining
demand for the metal in its more traditional
uses. (Silver consumption for silverware and
jewelry had actually declined, as a result of
the rising price of sterling silver and the increasing acceptance of stainless-steel flatware
of modern design.) But industry had to meet
much of its rapidly increasing needs through
the redemption of silver certificates. With
each dollar exchangeable for .7734 ounces of
silver, the availability of Treasury supplies
held the market price at $1.2929, the level
first reached in September 1963. But because
of this drain, as well as additional withdrawals
for speculat~ve holdings and inventories, redemptionsamounted to 141 million ounces in
1964.
Soaring coinage
Nevertheless, by far the largest drain on
Treasury stocks resulted from the tremendous
expansion in silver usage for coinage. The
actual silver crisis might. have been delayed
for years had not a terrific coin shortage developed. Consumption of silver for U. S. coinage began to rise sharply in 1961, and in fact
doubled over the next two years, reaching
112 million ounces in 1963. Even with this,
the demand could not be met, and the shortage
of coins turned critical around mid-1964.
At one time limited to relatively few geographical areas, to particular coins, and to
particular seasons of the year, the shortage
eventually became a general problem affecting the entire economy. Merchants found it
difficult, and in some instances impossible,
to make change. Banks, unable to satisfy their
customers' requests for coin, found it necessary to ration their supplies. In fact, coin
rationing was instituted down the line-from
the mints, to the Federal Reserve, to the commercial banks, to the public.
Availability vs. supply
The Committee on Government Operations,
investigating the coin shortage, drew attention
to the problem of availability as opposed to
the actual supply of coins. Large amounts had
been placed in circulation, but large amounts
had been withdrawn, by businessmen anxious
13
to assure themselves of an adequate supply for
the needs of trade, by the nation's 8 to 10
million coin collectors-and by speculators,
who bought up new coin by the roll, by the
bag, and even by the ton in the hope of profiting from a possible increase in the price of
silver or coin. Incidentally, vending industry
spokesmen argued in their own defense that
only about $22 million remained in their machines at anyone time, even though the
machines swallowed some $3,500 million in
coins every year.
As commercial banks found themselves with
less and less coin, the "flowback" of coin returned to the Federal Reserve Banks had
dropped sharply, from 11.4 billion coins in
fiscal 1962 to only 6.7 billion pieces in fiscal
1964. Deliveries of new coin from the Mint
had risen, but the added supply had been
more than offset by the drying up of return
flows from circulation.
By mid-1964, the return flow had shrunk
to the point where it was less than the amount
of new coin received from the Mint, whereas
in more normal times the return flow was nine
times as great as Mint deliveries. Consequently, the Reserve Banks were unable to deliver
coin on request and had to ration the limited
supply.
The rise in the price of silver to $1.2929
an ounce~that is, the development of a situation where the silver dollar was worth a
dollar of silver-had encouraged the run on
the Treasury's depleted stock of silver dollars,
as described above. Thus, broad new public
interest in coins was stimulated when the
Treasury found itself with less than 3 million
"cartwheels" and, amidst great publicity, was
forced to restrict redemption of silver certificates to bullion.
The withdrawal of coins gathered further
momentum when the Treasury issued the
Kennedy half-dollar in March 1964. The coin
was not a commemorative piece and was intended to circulate freely as just another coin.
Instead people all over the world sought to
14
keep it for sentimental and esthetic reasons.
The demand was so great that the coin sold
at a premium wherever it became available.
In Italy it brought $15, in Hong Kong $5. In
this country, many people were unable to
obtain even a single coin, although each sold
for as much as double face value when first
issued. (Coin fanciers with short memories
should be reminded that the same type of
situation developed when the Lincoln-head
pennies first made their appearance in 1909.)
Crash cure
Whatever the reasons for the coin shortage,
Treasury officials decided that it could be
overcome only by a rapid and substantial increase in production. By flooding the economy
with coins, they hoped to convince those who
held them for speculative reasons that the
market would soon be saturated.
The Treasury previously had planned to
boost production at the existing mint facilities
gradually over time, while waiting for the
completion of the new Philadelphia mint
authorized by Congress in 1963. This new
mint was designed to have as much production
capacity as the Denver and old Philadelphia
mints combined.
Events, however, forced the adoption of
another approach. In mid-1964, the Treasury
placed its two operating mints on a round-theclock seven-day-a.week intensified "crash program," in an attempt to double the annual
production of coins from 4 to 8 billion in a
year's time. It pushed into production all possible equipment and facilities-including the
San Francisco assay office, which was assigned to produce annealed blanks for nickels
and pennies-and also purchased metal strip
for coinage from private industry. Moreover,
it obtained Congressional authorization to
continue the 1964 date on new coins indefinitely, so that it could flood the market with
1964 coins and thus destroy the incentive for
dealers and hoarders to divert such coins
from normal commercial uses.
As 1964 drew to a close, the Treasury was
well along in its crash program. During that
calendar year the Mint produced 5.5 billion
coins, compared with 3.4 billion pieces the
year before-and in the second half of the
year, it produced as many coins as it did in
all of 1962. But about 203 million ounces of
silver were consumed during 1964's rapid
upsurge of Mint production. In fact, about
73 million ounces alone went into the production of some 200 million Kennedy half-dollars,
which collectors, hoarders, and souvenir hunters snapped up as soon as they went into
circulation.
By early 1965, the Director of the Mint
was able to report a definite improvement in
the coin situation. Businessmen were able to
get through 1964, including a busy Christmas,
without an actual crisis, even though consumer
spending was up $26 billion (7 percent) for
the year. The shortage of pennies, which at
one point had been critical, was completely
relieved, while the shortage of nickels was
almost over. Nonetheless, shortages continued
in the minor silver coins, and the half·dollar
was not circulating at all.
At the same time, the problem of silver
supplies had grown more acute. By June 1965,
consumption for coinage purposes was running at a 3OO-million-ounce annual rate, and
the Treasury's supply was down to 1,000 million ounces.
The Treasury thus faced the prospect of
total depletion of its stocks within a relatively
short period of time. In that event, the mints
would have had to stop coining dimes, quarters, and halves of the kind then in use. The
Treasury would no longer be able to offer
silver to all comers at $1.2929 an ounce. The
price of the metal could rise beyond $1.3824
-the point at which the silver content of these
minor coins would be equal to their face
value-and coins would begin to disappear
from circulation. Obviously, drastic new action was required.
....
"
.
-.-.
~~;:;;;;::::"'-.L-
15
Per Ounce
Decline in US
demand for 's"l and European
rise in sup I I ver moneYi
p y from new mines
MONETARY VALUE
Silver Purchase Acts
($ 1.29291
Wartime
d emand'
h
e~vy buyi no b •
Indian and Ch' y
Governments lOese
1.00
of Sherman
Repeal
Sil
ver Purchase Acf
Formal ada t·
plan
of G
old Standard
.50
NEW YORK PRICE
Dollars Per Ounce
2.50
Worldwide industrial
needs and speculative
demands resul! in
record prices
Silver's
Silver certif icate
redemption ends
Coinoge Act of 1965;
run on Treasury stocks;
final demonetization of
silver
Price
2.00
Chronology,
1870-1973
1.50
MONETARY VALUE
($ 1.29291
Treasury Slacks depleted by
rising coinage and Indusfrial
demand; suspension of sales
of Treasury free silver; repeal
of Silver Purchase Acts
1.00
Wartime demand; --------:;:----;.".-"'lII.".....- ..
followed by upward
shift in Treasury
purchase price
Sharp price decline, reflecting
easing of speculative pressures
and sluggishness of Industrial
demand
.50
Abandonment of Gold Standard
a
1920
1930
1940
1950
1960
17
1970
1973
r
The soaring industrial and coinage demand
for silver and the rapid depletion of the Government's silver stock forced the Treasury
in May 1965 to make a momentous decision:
"The world and the U. S. silver supply and
production situation and outlook do not warrant continuation of the large-scale use of
silver in the U. S. coinage." (Staff Study of
Silver and Coinage)
Moreover, the Treasury argued for a onceand·for-all change; otherwise, subsidiary silver coinage undoubtedly could suffer from
difficult transitional problems and from the
fear of future changes in silver content.
On the basis of technical studies, the Treasury recommended cupronickel clad on a copper core as the best metal for a new and permanent subsidiary coinage. This material had
several desirable characteristics - ability to
provide uninterrupted service as a medium of
exchange; acceptability to the public in terms
of weight, color, wearing qualities, and operation in vending machines; ease and certainty
of production; cost and availability; and compatibility with present coinage.
Cupronickel was already the most widely used
coinage material in the world. It was familiar as the basis for the American 5·cent piece,
and it had circulated side by side with silver
coinage in high-denomination coins in the
United Kingdom. Coins of cupronickel clad
on a copper core could operate readily in
vending machines without the difficulty, expense, and inconvenience of modifying existing rejectors. Furthermore, the Mint had made
sizeable production runs using the cupronickel
material and had not encountered any serious
difficulties.
According to the Treasury, the cost of the
alloy--45 cents a pound, based on 33-cent
copper and 79-cent nickel-would be much
less than silver at $18.81 a pound. Coinage
at the projected fiscal-1965 rate would require
approximately 5,355 short tons of copper and
1,785 short tons of nickel annually. In both
cases, the tonnages would represent a small
fractional part of total domestic consumption
and could be drawn from surpluses in the
strategic stockpile.
18
The Coinage Act
further protection for the silver coinage by
authorizing the Secretary of the Treasury to
prohibit the melting, treating, or export of
any U. S. coin. Again, to discourage hoarding,
it stipulated that any 900-fine coins minted
after the law's enactment would be inscribed
with the date 1964.
Finally, the legislation authorized the President to establish a Joint Commission on the
Coinage, a 24-man body representing the
legislative and executive branches as well as
the general public. The Commission, when convened, would be expected to make recommendations on such matters as the economy's
need for coins, technological developments in
metallurgy and coin-selector devices, the supply of the various metals, the future of the
silver dollar, and the Government's future
role in maintaining the price of silver.
Many of these Treasury recommendations
were contained in the legislation which President Johnson submitted to Congress in June
1965, and which was passed soon thereafter
as Public Law 89-91, the Coinage Act of 1965.
In the President's words, the legislation was
designed to "insure a stable and dignified
coinage, fully adequate in quantity and in its
specially designed technical characteristics to
the needs of our 20th-century life."
The need for this legislation was evident:
"There is no dependable or likely prospect
that new, economically workable sources of
silver may be found that could appreciably
narrow the gap between silver supply and demand. . . . The one part of the demand for
silver that can be reduced is governmental
demand for use in coinage."
Under the Coinage Act, some 90 percent
of the silver formerly used for coinage would
be made available for other purposes. The
new half·dollar was a composite-an outside
layer (80-percent silver, 20.percent copper)
clad on an alloy core (21-percent silver, 79percent copper). To the naked eye the coin
would be almost indistinguishable from the
old half-dollar, but it would be 40'percent
instead of 90·percent silver.
The new dimes and quarters, although identical in size and design to the former 90-percent silver coins, were made silverless. Each
of these also was a composite-an outer layer
(75.percent copper, 25.percent nickel) clad
on a core of pure copper. The legislation did
not call for any change in the silver dollar,
but it specified that none be minted for five
years.
The Government's readiness to sell silver
bullion from its stocks at $1.2929 an ounce
had previously provided protection against the
melting of silver coins, since it effectively
prevented the price of silver from rising above
the face value of the coins. Now, since the
Treasury intended the silver coins to circulate
alongside the new coins, the Act provided
Consumers vs. producers
Public opinion-as expressed in the Congressional hearings which preceded the passage of the Coinage Act-was virtually unanimous in regard to the need for reducing the
silver content of the nation's subsidiary coinage. Emotions ran high, however, on the
question of "how much," as would be expected from the diversity of interests with a
stake in silver's future.
Silver users, anxious to have ample supplies
of the metal available at stable or declining
prices, wanted silver to be completely eliminated from the coinage. They pointed out
that total world production could fall 100
million ounces below annual industrial demand alone, so that even under the most favorable circumstances, Treasury stocks could disappear within a half-decade.
In their analysis, silver.consuming industries projected a sharp reduction world·wide
in silver usage for coinage. In this country,
Mint requirements could drop perh~ps .90 percent from the 1965 peak to about 30 million
ounces; in other countries coinage requirements could drop 50 percent, also to about
19
30 million ounces. (Most countries throughout
the world had already eliminated or drastically reduced the use of silver for coinage.)
However, consumers projected an increase in
world-wide industrial consumption to 360 million ounces by 1970, even assuming a reduced
growth rate in that segment of the market.
The resultant world-wide demand, 420 million
ounces annually, would substantially exceed
the projected supply, which (optimistically)
could be estimated at about 340 million ounces
from mine production and secondary sources.
Silver producers took a somewhat different
view of the future. Fearing that a sharp swing
away from silver might trigger a price break,
they argued for the retention of silver in the
coinage to the maximum extent feasible. They
claimed that the supply deficit had been
abnormally inflated in 1964 by the hoarding
of well over 100 million ounces in the form
of Kennedy halves and speculative stocks;
furthermore, they claimed on the basis of current exploration that world mine production
could increase by one-fourth or more within
several years' time. (They were right on the
first count, hut wrong on the second.) Thus,
they argued that increased mine production,
along with the gradual recovery of the 1,800
million ounces of silver outstanding in coins,
would permit the retention of some silver in
both the half-dollar and the smaller denominations.
Western legislators argued that Treasury
stocks would soon be depleted unless the Government permitted the price of silver to rise
in a free market. Moreover, they felt that the
Treasury approach failed to attract increased
production and thereby in effect aggravated
the coin shortage. Thus, the Western governors' conference in 1965 resolved "that Congress provide for retention of silver in reduced
amounts in all coins now silver, that an
affirmative program be adopted to increase
exploration for and development of domestic
silver supplies, and that silver be permitted
to seek its own price in the market place."
The vending industry, with its $3.5-billion
annual take in coins, wanted coins that would
be "compatible" with the nation's 12 million
coin-operated merchandising devices. About
half of these machines tended to reject coins
that lacked the correct electrical properties,
20
and major changes in them could require
several years' time and could cost perhaps
$100 million. Furthermore, the industry wanted coins that would pose no inconvenience
to the consuming public, which plunked 30
billion pieces into these machines annually for
over 12 billion cups of coffee, milk and soft
drinks, about 4.5 billion candy bars, and
numerous other goods and services.
Finally, almost every company with a material in any way suitable for coinage--from
aluminum to zirconium-pressed its claim for
inclusion in the new coinage.
Actually, the Coinage Act, like the new coinage, was a composite containing something
for nearly everyone. For Western silver producers, silver kept at least a stake in the coin·
age, with the new half·dollars requiring at
least 15 million ounces per year. Producers
also received the assurance of a minimum of
$1.25 per ounce for their silver supplies.
Silver users did not get an entirely silverless coinage, but they did get silverless dimes
and quarters. In addition, the continued reo
demption of silver certificates by the Treasury
provided an effective ceiling on the price-at least for awhile. The vending industry also
was well enough satisfied, because the cupronickel and copper coins had the same electrical
properties as the silver coins and worked
satisfactorily in existing machines.
Millions of Ounces
o
100
200
1900
1940
1950
1960
1972
achieve an unprecedented production rate. In
November 1965, the Mint released over 230
million new clad quarters, and scheduled the
release of that many more pieces every single
month - four times the highest production
rate ever previously attained. These new coins
carried the economy safely through the Christmas season without a crisis.
In early 1966, when almost 700 million new
quarters already were in circulation and the
first new dimes and half-dollars were about
to be released, Assistant Treasury Secretary
Wallace told a Senate subcommittee that "the
supply of our most vital coins-the quarter,
dime, nickel, and penny-is in better shape
now than in any comparable period during
the last ten years. . . . There is no shortage
of those coins most vital to the transaction
of business." Flow-back and inventories at
the Federal Reserve Banks had increased in
all denominations except the half·dollar. But
relatively few of the latter were in circulation,
despite the production of 480 million Franklin
halves in the 1948·63 period and of almost
that many Kennedy halves in the following
several years.
The Treasury scheduled total production
for the fiscal 1965·67 period at 34 billion
coins--enough to provide every person in the
Stamping out the shortage
Considering the persistence of the coin
shortage, the release of the new coins appar·
ently did not come a moment too soon. Despite
the continued expansion in production of silver coins under the "crash program," Federal
Reserve inventories of quarters had shrunk
to only 15 million pieces for the entire nation
on the eve of the 1965 Christmas season.
But with the help of the new Coinage Act
-which authorized the reactivation of coin
production at the San Francisco Assay office,
the construction of new facilities, and the acquisition of necessary metallic strip, equipment, and supplies - the Mint was able to
21
country with 180 additional pieces. Its objective was to manufacture enough of the new
clad coins to replace over a relatively brief
period all of the 13 billion old dimes and
quarters then in circulation.
months. (During the first half of May alone,
33 million ounces flowed out-much of it out
of the country.) Thereupon, the Treasury
turned for advice to the Joint Commission on
the Coinage. That 24-man commission-eomposed of 12 members of Congress concerned
with silver policies, along with 4 members
from the Executive branch and 8 public members appointed by the President-had been
organized under the terms of the 1965 legislation to formulate long-range coinage plans
for the post-silver era. Its first meeting was
held in May 1967, when it was hastily convened to make recommendations dealing with
the Treasury's current dilemma.
Disappearing stocks
The steps taken under tr.e new Coinage Act
were successful in overcoming the nation-wide
coin shortage, but they failed to halt the continued drain on the Treasury's silver supplies.
As 1966 advanced, in fact, the feeling grew
that the Treasury might not be able to hold
the line until the completion of the transition
to the new coinage. The Treasury used only
54 million ounces for coinage in 1966, as
against the 1965 peak of 320 million ounces,
but its stocks continued to decline as both
domestic and foreign industrial users increased their demands. So Treasury stocks
dropped, and then dropped some more--from
1,218 million ounces in December 1964 to 804
million ounces in December 1965, and then
to 594 million ounces in December 1966.
Moreover, an ominous threat existed in the
form of the silver certificates that had not
yet been turned in for redemption. At the end
of 1966, all but 154 million of the 594 million
ounces in the Treasury's holdings were earmarked for redemption of certificates.
The Administration acted to meet this situation by introducing a new piece of silver
legislation in March 1967. (As P.L. 90-29, it
became law on June 24.) The law authorized
the Treasury to write off $200 million in
certificates-on the assumption that at least
that amount had been lost, destroyed, or held
in collections, and thus would not be turned
in for redemption. In addition, it limited the
time for the redemption of certificates to one
year after the passage of the legislation. Any
stocks then remaining, aside from 165 million
ounces earmarked for the strategic stockpile,
could be sold at not less than $1.2929.
The crisis would not wait, however, as the
Treasury was hit by an unprecedented flood
of orders for silver bullion during the spring
Discontinued sales
Immediately following the Commission's
May 18 meeting, the Treasury moved to assure
the continued availability of silver to the U. S.
market by discontinuing silver sales to other
than "legitimate domestic concerns" and by
invoking its statutory authority to prohibit
the melting or export of coins. The direct
result was the creation of a dual market.
While the dealer price in New York remained
at $1.30 an ounce, silver prices on the dealer
and exchange markets abroad rose sharply.
Then, as soon as the President signed the
new law on June 24, the Treasury wrote off
$150 million of certificates, thereby freeing
116 million ounces of previously earmarked
silver stocks and raising its free stocks to
135 million ounces. But the spread between
the unrestricted price on world markets and
the Treasury price proved to be too wide to
be long maintained. With the London price
fluctuating around the $1. 70·level in early
July, producers quite naturally sold their supplies in the premium markets while industrial
users turned increasingly to the Treasury for
their purchases.
By mid-July, the Mint had produced 8%
billion new dimes and quarters - virtually
duplicating the entire old stock of circulating
silver dimes and quarters-and it was minting
22
more of these clad coins at a 3%-billion annual rate. Thus the problem of transition appeared solved: even if all other silver coins
followed the silver dollars out of circulation,
sufficient numbers of clad coins would be
available in circulation and in inventory to
meet the foreseeable needs of a growing economy.
of people formed early each morning at the
New York and San Francisco assay offices to
make the guaranteed .77-ounce-per-dollar exchange. (Those with $1,300 or more first had
to exchange their certificates for a receipt at
the Federal Reserve Bank.)
Altogether, 77 million ounces left the Treasury's coffers during this episode - roughly
three times more than had been expected on the
basis of the earlier pace of redemptions. With
that transfer out of the way, and with allowances made for certain supplies earmarked
either for the strategic stockpile or for such
remnants of the silver-coinage system as partsilver Kennedy halves and (later) part-silver
Eisenhower dollars, the Treasury's available
stocks under the weekly-auction program were
all disposed of by November 1970.
At that point, following the Commission's
second meeting on July 14, the Treasury halted all sales of silver at the old monetary value
of $1.2929, and announced that it would sell
thereafter only 2 million ounces a week, with
the General Services Administration handling
the sales at the metal's going market price.
This reduction in Treasury offerings by itself
would have pushed prices upward. But by an
unfortunate coincidence, the very next day the
copper strike shut down nearly all nonferrousmetals refineries, and thereby pulled off the
market, for almost nine months' time, a large
part of the normal refinery supply of silver.
The Treasury's withdrawal from the silver
market was complicated somewhat by a prolonged controversy over the production of an
Eisenhower silver-dollar coin. The controversy
was resolved by legislation, signed by the President on the last day of 1970, that called for the
minting of 150 million Eisenhower coins containing 40 percent silver. In May 1971, the San
Francisco Mint began producing these memorial coins, priced at $3 for "uncirculated" coins
and $10 for "proof" coins. When general distribution of these collectors' prices began that fall,
dealers reported very heavy domestic and foreign demand, sometimes at twice the Treasury's
asking prices.
The 1970 legislation authorized non-silver
Eisenhower dollars and Kennedy halves for general circulation, similar in composition to the
present quarters and dimes. (The former 40percent silver half-dollar was discontinued.)
After 4,7 million ounces of silver were allocated
for production of the memorial Eisenhower dollars, the only silver left in Government hands
consisted of the 140 million ounces in a scaleddown strategic stockpile, plus 3 million old 90percent silver dollars which may be disposed of
at auction. By the time the curtain fell on this
These two developments in combination
created an explosive price situation. The New
York price immediately jumped from the old
$1.29 ceiling to $1.87 an ounce, and after a
brief period of stability, it surged upward
again during the international financial crises
of late '67 and early '68. In June 1968, the
New York price reached a whopping $2.56%
an ounce.
Final silver rush
These rousing price developments, along
with the Treasury's June 24 deadline for redemption of silver certificates, set the stage for
one final silver rush. In the Wall Street Journal's description, "Newcomers needn't pack
picks, shovels, and Klondike maps, hut just
have wads of paper money (silver certificates,
to he specific), a futures contract, and taxi
fare to the nearest Federal Reserve hank." In
May and June especially, when half of the
final year's redemptions occurred, long lines
23
decade-long drama, market forces had depleted
Treasury stocks of roughly 2 billion ounces of
silver.
then dropped as low as $1.60 an ounce during
the spring months. This decline reflected not
only the underlying factors described above, bUl
also the severe stock-market decline. In many
cases, margin calls forced stock-market participants to sell their silver holdings to raise cash,
and falling sHver prices then led to margin calls
in that market. As this downward spiral in the
silver market continued, many speculators were
forced out of business.
Nontheless, prices dropped from the $2.56%
peak all the way down to $1.54 an ounce between mid-1968 and mid-1969. This sharp price
break reflected the improvement in the international situation, the growth of supplies resulting from decreased strike activity, the downturn
in both coinage and industrial demand, and a
fall-off in speculative buying. Speculative interest was dampened, not only because of the perverse movement of prices, but because of the
prospect of increased supplies created by the
Treasury's withdrawal of its coin-melting ban
and by its announcement of continued auction
sales through the following year. By late 1969,
however, prices rose again to the $2.00 level as
legislators from silver-mining states began advocating a large mint run of Eisenhower silver
dollars - a proposal that would have depleted
the Treasury's remaining stocks much faster
than had originally been anticipated.
Growing disillusionment
The market atmosphere during both 1970
and 1971 reflected a growing disillusionment
among speculators, because of the persistent
failure of the market to live up to their price
expectations.In particular, as could have been
expected, speculators expected prices to soar
with the end of Treasury silver sales in November 1970, but most consumers evidently had
covered their major needs prior to that date,
and most speculators too had already bought in
because this "sure thing" had been so well advertised. Consequently, with no new buying,
and no upward price action, speculators began
to bailout of the market, and prices tumbled
sharply. Prices, which had risen as high as
Prices fell below the $2.00 level in early 1970
as the Eisenhower-dollar proposal became
bogged down in Congressional debates, and
24
half of 1972. Demand boomed for the metal in
the photographic and electrical industries, the
two largest end-users. Still, the largest percentage increases in demand occurred in sterling
ware and jewelry, at least partly because gold
had priced itself out of these markets.
In the face of this burgeoning demand, new
U.S. mine production dropped in 1972 for the
second straight year, and then fell 8 percent below the year-ago level during the first half of
1973. (Worldwide mine output also dropped,
largely as a consequence of this decline at U.S.
mines.) The sharp fall-off in production came
about because of a tragic fire last year at Idaho's
Sunshine mine, which led to a nine-month shutdown of that major facility, and also because of
afour-month strike this past spring. Supplies
have also been affected by the closure of some
lead and zinc smelters that failed to measure
up to new environmental codes.
Silver users thus have had to rely increasingly on inventories and secondary supplies
(scrap) to cover the ever-growing shortfall.
On the heels of a 27 million-ounce decline in
1971, inventories in the hands of industrial
consumers and stocks on the New York and
Chicago exchanges dropped another 33 million
ounces in 1972 and have continued to fall at
an even steeper rate in 1973.
World-wide stocks of silver bullion are still
large - perhaps as much as 350-400 million
ounces - despite substantial reductions over
the past three years. Another 117 million ounces
is potentially available from the U.S. government depending upon whether or not Congress
authorizes its release from the strategic stockpile. These stocks, together with recycled metal,
will provide a reserve upon which to draw to
meet the future worldwide deficit between consumption and production of the metal. As these
stocks are drawn down, a long-range upward
price trend for silver appears inevitable; but
over the short-run, the price is still likely to be
subject to the vagaries of the business cycle and
the reactions of speculators to monetary and
political developments.
$1.85 an ounce in the wake of the mid-1970
stock-market recovery, fell sharply during November, and traded ina $1.60-$1.75 range from
then until the spring of 1971.
Further weakness then again developed, and
prices fell about 25 percent between the spring
and late fall, even in the face of an international
crisis that normally would have sent prices
soaring. In early November, the low point was
reached at $1.28, only slightly above the $1.25
level at which the Treasury would have been
required to buy newly-mined domestic metal
under the terms of the Coinage Act of 1965.
U.S. industrial consumption moved downward
over the 1969-71 period from 142 to 129 million
ounces, narrowing the gap between production
and consumption from 100 to 87 million ounces.
Meanwhile, in the face of declining silver needs,
industrial consumers had become increasingly
aware that there was no physical shortage of
silver. Industrial and investor stocks had grown
rapidly in the five years preceding the government's withdrawal, and these private holdings,
as well as other supply sources, were available
to meet industrial needs at relatively low prices.
In sharp contrast, the tenor of the silver market changed dramatically in late 1972 and 1973,
so that the New York market price exceeded
even its 1968 peak and reached a new high of
$3.04 by mid-October of 1973. The worldwide
industrial boom played a major role in this
upsurge, but the universal commodity inflation
and several devaluations of the dollar also contributed by increasing the demand for silver by
those who viewed the metal as a safe store of
value during periods of currency uncertainty
and persistent inflation. Supply difficulties,
partly caused by production problems and partly
by price controls, aggravated the upward pressure, and heavy speculative demand due to new
international crises then capped the climax.
U.S. industrial consumption increased by 10
percent in 1972, and as the boom reached its
peak in the first half of 1973, silver usage
jumped 41 percent above the level of the first25
As a major mmmg center, the West has
always had a vital interest in the fortunes of
silver. And on frequent occasions since the
opening of the Comstock lode, the white metal
has dominated the regional as well as the national stage. The voice of silver has been
heard in the halls of Congress; and the economy, the society, and the politics of the West
have harkened to its voice.
Prosperity has been only a fitful visitor to
silver mining camps, however. Prices have
fluctuated violently over the years, while the
long-term trend of output and employment
has been downward. But, as of today, the
versatile metal can bask in the upsurge of
industrial demand which-along with the speculation which accompanied depletion of Treasury stocks-has caused prices to triple within
the past several decades. In the context of this
new situation, the silver camps of the West are
bustling with new life.
But Comstock was only one of a series of
rich silver finds. In the late 1860's, there was
Black Hawk Canyon (Colorado), Cottonwood
Canyon (Utah), Butte (Montana), and Owyhee County (Idaho). The 1870's and 1880's
saw the development of the great silver deposits at Leadville, Colorado, as well as the mines
in the Calico District of California.
From this series of beginnings, the Western
states, as the center of U. S. mining activity,
soon made this country the world's leading
silver producer. (After 1900, however, Mexico
took first place.) Colorado and Montana, topping the roster of producing states in 1900,
Across the High Sierra
The birth of the nation's silver industry
occurred in the Washoe Hills of Nevada in
1853, as thousands of miners rushed across
the Sierra from the already failing placers of
California's Mother Lode to stake a claim in
the fabulously rich Comstock Lode. Over the
next twenty years, the Comstock bonanza
helped finance the Civil War, provided the
foundation for a transcontinental railroad, and
established San Francisco as a glittering and
opulent metropolis. By the time the lode
played out at the end of the century, the
bonanza had yielded over $200 million worth
of silver and almost as much in gold.
26
Millions of Ounces
80
60
40
20
o1900
1910
1920
1940
1930
accounted at that time for 60 percent of the
domestic total of about 58 million fine ounces.
Utah, Idaho, and Arizona were next - and
then came Nevada, despite the virtual exhaustion of the Comstock.
Twelfth District states have dominated the
industry during this century; in 1972, even
with the problems at the Sunshine mine, they
supplied almost 70 percent of the 38 million
ounces produced domestically. Idaho's share
began to rise dramatically in the late 1930's,
and normally produces almost half of the nation's silver. Most of it emanates from the rich
silver-base deposits of the 'Coeur d'Alene District in northern Idaho, the home of the nation's
two largest silver mines.
Arizona and Utah are also major producers,
each accounting for about one-sixth and onetenth of the nation's total output respectively.
Arizona's share of the total has increased in
recent decades, but Utah's share is somewhat
below what it was a generation ago. Nevada
reached its best position in this century in 1913,
when development of major deposits at Tonopah gave her 7 percent of the domestic total,
while California's share reached a peak of about
8 percent in 1924, at the height of operations
1950
1960
1970
at the California Rand Mine in San Bernar·
dino County. Today, however, those two states
each account for less than 1 percent of U. S.
production.
Declining production
In terms of the value of output and the num·
ber of employees, the silver industry throughout
this century has been relatively unimportant in
the Western economy. This has been especially
true since the short-lived boom created by the
Silver Purchase Act of 1934. While the total
value of mineral production has more than
quadrupled over the past three decades, the
value of silver production (at about $64 million
in 1972) has increased only slightly. Thus, sil·
ver's share has dropped from 5 to 1 percent of
total mineral production in the District over
this period. Currently, silver is significant only
in the economy of Idaho, where, as the leading
mineral, it accounts for about one-fourth of the
state's mineral output.
The world's silver production is concentrated
in the mountain ranges of the Western Hemisphere. In 1972, four countries alone - Can·
ada, Peru, the U.S., and Mexico - accounted
for about two-thirds of total production in the
27
non-Communist world. Those four nations generally boast roughly equal shares of the total
market, with the actual figures shifting from
year to year as dictated by changing production
or marketing factors.
The U.S. led the world production race in
1970 with 45 million ounces, followed closely by
Canada. But by 1972, the U.S. dropped behind
Canada and Peru, continuing a long-term decline in production which, in the face of expanding mine production elsewhere, helped reduce
the U.S. share of total output over time. This
country's market share dropped from about 25
percent to just under 20 percent between 1940
and 1950,and' fell even lower in some years of
the 1960's and early 1970's to only 16 percent
by 1972.
Inelastic: supply
Expansion of silver production has always
been made difficult by a simple fact of technology. Two-thirds of the nation's (and the
world's) silver is traditionally recovered as
a co-product or by-product in the treatment
of base metal ores - copper, lead, and zinc. As
such, demand and price factors for these
metals influence production of silver to a
larger extent than silver's own demand and
price developments. Production of these metals
has been generally sluggish for several decades
- aside from an upsurge in 1969-70 - so that
silver's sluggish production performance has
been practically inevitable. And to complicate
the matter, 90 percent of the nation's measured
silver reserves are located in base metal deposits
of this type.
Furthermore, silver production from these
mines depends on the quality as well as quantity of the ores being worked. Porphyry copper deposits, a major source of primary copper in this country, contain a very low percentage of silver-0.02 to 0.11 ounce recovered per ton of ore - but they are a major
source of silver because of the vast tonnages
mined and processed each year. Yet production of silver has failed to increase over the
28
Mining districts with over 50 million ounces
production or reserves
leading mineslodoy,
in arder of production
Sail lake City
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Increased Canadian production came from
these sources: a new lead-zinc mine in New
Brunswick, a copper-zinc mine at Lake Dufault, Quebec, the Granduc and Western copper mines in British Columbia, and in 1967
from the vast bonanza discovered several
years before at Timmins, Ontario. Ore reserves at the Timmins site were originally
estimated at 55 million tons, with each ton
containing 4.85 ounces of silver along with
substantial deposits of zinc and copper. When
the new Kid Creek mine and 9,000 ton/day
concentrator began operations at the site in
1967, the Timmins property became the largest silver producer in the world.
Recognizing the pressing need for new silver discoveries, Interior Secretary Udall in
late 1964 directed several agencies to expand
exploration activities. To begin with, the Office of Minerals Exploration increased the
percentage of Federal financial assistance
from 50 percent to as much as 70 percent of
the total cost of new exploration ventures.
last several decades, even in the face of a 90percent rise in copper production, because of
increasing dependence on ores with lower
silver content.
The facts of technological life thus tend to
keep silver production secondary to that of
other metals, and somewhat unresponsive to
developments within the silver industry itself.
Nonetheless, the sharp improvement in the price
of the metal during the mid· 1960's contributed
to a sharp improvement in mine supplies. Except for the strike-beset period of 1967-68, pro·
duction at U.S. mines averaged 43 million
ounces annually during the 1966-70 period, as
opposed to an average of 35 million ounces duro
ing the first half of the 1960's. Moreover, production averaged 40 million ounces during the
1971-72 period despite production problems.
Rising production
Increased U. S. production came from a
number of sources: in Utah, the high.grade
lead-silver deposits in the East Tintic district
and the huge copper deposits in Bingham
Canyon; in Montana, the Twin Buttes and
Flathead mines; in Idaho, the Sunshine, Crescent, and Silver Summit mines, and so on.
In addition, the Geological Survey initiated
a reconnaissance program designed to indicate
likely areas of near-surface silver deposits in
various Western states. The program included
geologic mapping and geophysical and geochemical studies of target areas, utilizing the
latest instruments and techniques-including
an instrument capable of detecting mercury,
which is generally located with silver deposits.
Old districts such as the Comstock and the
Tonopah were studied with the new techniques
in the hope of discovering additional reserves.
Mllliolll of Tro, Ounces
Some unexpected target areas showed definite promise. Bedded sandstone deposits in
various areas, especially the Silver Reef deposits of Utah, were found to contain appreciable amounts of silver, and the same was
true of black calcite deposits located in other
Western mining districts. Also, on the basis
of a Geological Survey report, a deposit near
Battle Mountain, Nevada, was tested as a
potential copper·gold-silver producer.
30
million ounces annually during the decade of
the 1960's, largely because of the rapid increases recorded in markets abroad. (Industrial consumption rose 80 percent in foreign
markets and 30 percent in U.S. markets between 1960 and 1970.) In contrast, new silver
production worldwide rose only 20 percent,
from 207 to 247 ounces, over the same time·
span. Thus, a growing gap developed between
industrial usage and production in the 1960's,
after a decade in which the trend had been just
the other way. Consequently, despite the precipitate decline in coinage usage, a wide dis·
parity of about 138 million ounces still existed
as of 1970 between total consumption and production. Moreover, this gap widened to 180
million ounces by 1972 with the further expan·
sion of consumption. As the industrial expansion continues, the gap could easily widen over
time. There are ample speculative supplies and
secondary sources to cover the global deficit
for several years to come, and their release from
private hoards is just a question of price.
At this point, silver's history continues to be
full of ironic touches. Despite all the efforts of
the Populists to raise silver prices and restore
prosperity through the silver legislation of the
late nineteenth century, success came only
through the inflation generated by the hated
golden metal and through the growing market
created by the distrusted city multitudes. Despite all the efforts of late-model Populists to
achieve the millenium through the silver legislation of the 1930's, prosperity returned only
as increased demands were generated by a war
which Populists and everyone else sought fervently to prevent. And when the price of the
metal soared to record levels because of the
demands generated during the affluent 1960's,
silver's newfound success led to its demise as a
major monetary metal.
Projects such as these-and the rise in silver prices-sent prospecting teams scouring
the West for new deposits. As an indication of
the great interest in the metal, over 2,000 new
claims were staked in the Wallace-Kellogg district of Idaho alone during 1967, compared
with a total of just over 1,200 recorded during
all of the previous half-decade.
But since prospectors could not hope to find
another Comstock lode--or even another Timmins bonanza-every day, the industry also
reactivated old mines and developed previously
by-passed marginal veins. Most of this activity
centered in the Coeur d'Alene district of Idaho,
the only major district in the world where the
value of silver constitutes over half the value of
all ore mined. These projects, along with the
improvement in base-metal production, had
borne fruit in increased silver supplies before
the Sunshine mine fire and subsequent strike
sent production heading downward.
From shortage to . . . ?
Industrial silver usage in the non-Communist
world as a whole increased from 225 to 358
31
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Publication Staff: R. Mansfield, Artist; Karen Rusk, Editorial Assistant.
Single and group subscriptions to the Monthly Review are available on request from the
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