The Silver Saga
THE INCREDIBLE COLLAPSE OF THE VALUE OF
SILVER COINS IN THE 19TH CENTURY
- DON’T BLAME COMSTOCK! -
The silver standard did not die a natural death. It was deliberately killed. A proper search for the assassins was never carried out. There was never a post-mortem. In this paper we focus on the conspiracy as it might have unfolded between the two dates: April 9, 1865 (the day General Lee of the Confederacy surrendered at Appomattox to General Grant of the Union marking the end of the War Between the States) and January 1, 1879 (Resumption Day, when payment of the victorious Union’s currency, the greenback was resumed in gold specie, but not in silver).
China has been on the silver standard since time immemorial. The Chinese did not use coins for monetary purposes such as bank reserves until the end of the 19th century; they used the sycee, a shoe-shaped ingot of approximate size 5⤫3⤫3 inches, weighing approximately 50 taels or about 5 pounds (avoirdupois). No one can pretend to know, however approximately, how much monetary silver has gone into hiding in China and in India, these two most populous countries also known as the world’s sink for silver, over the millennia.
In comparison estimates of monetary gold having gone into hiding over the same period of time are far more reliable. Be that as it may, the amount of monetary silver unaccounted for is probably greater than any estimate ever made.* In the 19th century silver coins did most of the money-work in the world. The turnover of silver coinage (the value of silver coins times their velocity) was at an all-time high, eclipsing the turnover of gold coinage by far. Inept governments did not follow the lead of Isaac Newton, and they tried to enforce a rigid exchange rate between the two monetary metals (called the Mint ratio). This system was called bimetallism, a stillborn idea.
Bimetallism did not stabilize the exchange rate. On the contrary, it has destabilized it. The natural monetary system is based on silver and gold valued at a variable rate, as Newton’s monetary system in Britain did. Bimetallism was the disease, the demise of the silver standard was the unfortunate consequence. In the Western countries by 1879, in India by 1893, in China, the last stronghold of silver, by 1935, silver was demonetized. Between the two dates 1879 and 1935 the world witnessed a most spectacular event: the collapse of the value of silver by more than 80% in a little over half of a century. Silver fell from $1.29/oz in 1873 to 25¢/oz in 1935. Putting it differently, the gold/silver price ratio rose from 15:1 to more than 80:1. Never in history, ancient or modern, have markets put such fancy values on gold in terms of silver.
Conclusion
I have never been a conspiracy theorist. I never joined latter-day crowds crying “stop the manipulation of the silver and gold price by unlimited naked short sales!” I know full well that the present low price of silver is a remnant of the tragic outcome of the Silver Saga that started some 145 years ago at Appomattox. The prospect of Resumption of specie payments after the War Between the States created an incredible opportunity for monetary mischief. The circumstantial evidence is that the opportunity was fully exploited by an international banking cartel to sabotage the international monetary system. This observation does not make me a conspiracy theorist. I am offering a detailed plan to find out, some 145 years after the event, using the method of standard deviations from the means borrowed from mathematical statistics. We owe it to ourselves to do the necessary research. The world economy, sagging as it is under the weight of its debt tower and fast depreciating irredeemable currencies, is clearly on its way to self-destruction. The forcible elimination, first of silver, and then a hundred years later of gold, from the monetary system removed the only ultimate extinguishers of debt we have. In consequence, total debt can only grow, never contract. The process is hidden since the unpaid and unpayable debt is accumulating as ‘sovereign debt’ of governments. The world is deluding itself that sovereign debt can increase indefinitely as governments can extend its maturity indefinitely. In 2008 we had the wake-up call that it cannot. Unless we stop the proliferation of debt, the world is facing prolonged deflation, depression, continuing capital destruction, bankruptcies and unprecedented unemployment. It is leading to a breakdown of law and order. It could spell the end of our civilization.
Note. A fuller version of this address is posted on my website www.professorfekete.com under “Scholarly Economics”.
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