The Story of Silver

by William L. Silber

  Roosa was an East Coast banker like Dillon whose support for the yellow metal would have made William McKinley blush. He had been a senior executive at the Federal Reserve Bank of New York, where he taught everyone passing through, including a young Paul Volcker, that gold was just one letter away from god.17 Dillon knew that Roosa would downgrade silver as a monetary metal, but that was not the main reason he neutered the mint director in policymaking. On Saturday, September 23, 1961, the Senate had confirmed President Kennedy’s appointment of Eva Adams as the new director of the mint.18 The redheaded Adams was born in Wonder, Nevada, and moved to Washington, D.C., in 1940 when she joined the staff of the late Senator Pat McCarran. At the time of her appointment as mint director she was the administrative assistant to McCarran’s successor, Senator Alan Bible, and her new position promised jubilant silver bloc senators an inside advocate for the white metal. The press questioned why Kennedy made the appointment, considering his statement years earlier as a Massachusetts senator that “there is no longer any sound economic and social justification” for silver subsidies.19 Kennedy’s sympathies lay with Massachusetts silversmiths who had favored cheap raw material for their wares since the Revolutionary War, when Paul Revere practiced the trade. But the journalists had forgotten that Nevada was one of the few western states to vote for JFK in the 1960 presidential election and Kennedy owed Bible. The president paid his obligation when Adams was confirmed as director of the mint on September 23, 1961, but two weeks later, on October 9, his Treasury secretary delivered the double cross by removing silver policy from her portfolio.

  Douglas Dillon softened the blow by telling Adams at her installation on Monday, October 30, 1961, “I can confidently predict that your business will continue on the upgrade,” which was true because she would oversee the growing production of nickels, dimes, and quarters for use in the expanding population of vending machines and parking meters fed by maturing baby boomers.20 But manufacturing small change was not what the silver senators had in mind when they celebrated Eva Adams’s appointment to the mint, even though an emerging coin crisis would soon threaten their interests. They expected her to carry on the Nevada tradition of boosting miner subsidies that began with Key Pittman and continued with Pat McCarran, but Dillon’s knockout punch before the installation neutralized his warm words, quieting the celebration.

  JFK declared war on silver subsidies in his November 28, 1961, directive, promising “to recommend to Congress, when it reconvenes, that it repeal the acts relating to silver,” including the most important of all, the Silver Purchase Act of June 19, 1934.21 Kennedy followed up in his Economic Report to Congress in January 1962 by saying, “Silver—a sick metal in the 1930s—is today an important raw material for which industrial demand is expanding steadily. It is uneconomic for the U.S. Government to lock up large quantities of useful silver in the sterile form of currency reserves. Neither is any constructive purpose served by requiring that the Treasury maintain a floor under the price of silver. Silver should eventually be demonetized, except for its use in coins.”22

  The 1934 Silver Purchase Act targeted the white metal to become 25% of America’s monetary reserves, and although that goal remained unfulfilled, it resulted in $2.1 billion silver certificates outstanding at the beginning of 1962, a quintupling since the act was passed.23 The Treasury held almost 1.7 billion ounces of silver bullion to redeem these certificates, which were a small but integral part of America’s money.24 Federal Reserve notes issued by America’s central bank dominated U.S. currency, just as they do today (check your wallet), but by law all one-dollar bills were silver certificates back then, rather than Federal Reserve notes, and were secured by about three-quarters of the Treasury’s silver.25 The remaining bullion at the Treasury backed five-dollar and ten-dollar silver certificates that mixed seamlessly with Federal Reserve notes of the same denomination. Kennedy would have to fight a nuclear war with the silver senators to repeal the Silver Purchase Act, but he could start to remove the white metal as monetary reserves without congressional approval by finding and withdrawing the five- and ten-dollar silver certificates and replacing them with Federal Reserve notes. Kennedy told Dillon to begin this search and destroy mission, and Dillon turned to Elizabeth R. Smith, the treasurer of the United States, to implement the plan.

  The treasurer of the United States, an officer within the Treasury Department, is most famous for signing every piece of American paper currency (check your wallet again to see the signature on the front-left side of any bill) and is also responsible for maintaining the physical integrity of America’s cash. The treasurer oversees the removal of frayed or worn dollars and the substitution of crisp new bills, with technical assistance from banks and the Federal Reserve System. In the first six months of 1962 Elizabeth Smith withdrew enough five- and ten-dollar silver certificates to free 45 million ounces of bullion.26 The unencumbered silver was used to manufacture subsidiary coins, such as dimes, quarters, and half-dollars, precisely as Kennedy had directed.27

  Freeing silver bullion by making five- and ten-dollar Treasury certificates disappear was just a minor skirmish in a full-scale battle that erupted on Tuesday, February 20, 1962. The Treasury submitted a bill to Congress to repeal the 1934 Silver Purchase Act as well as the July 1946 bill establishing 90.5¢ as the subsidized price for the white metal.28 The proposed legislation also authorized the Federal Reserve to issue one-dollar notes so that the Treasury could withdraw the same denomination silver certificates and free the bulk of its bullion for coinage purposes. In case Americans thought this was a technical adjustment that would put anyone but a dismal scientist to sleep, the New York Times focused on the politics:29 “The Administration has made its formal bid to break the Democratic Party’s historic ties to silver.” The Times then added a dark cloud, “But some important Democrats are not disposed to make the change.”

  Senator Alan Bible wasted no time settling the score with JFK, urging his fellow senators investigating “Gold and Silver Production Incentives” to reject the president’s proposal: “I would think that this subcommittee … should speak out very strongly on the present legislation which is pending before the Banking and Currency Committee. … It seems to me that now is not the time to repeal the Silver Purchase Act.”30 Bible then reminded his colleagues of Kennedy’s trickery at their expense: “As you well recognize … the President of the United States without congressional enactment called in silver certificates … and replaced them with Federal Reserve notes. … I hope this Hearing will throw some light on this.” Senator John Carroll of Colorado, an important mining state, echoed Bible’s concern, saying it is “a good time to put to rest the ghost of a possible repeal in this session of Congress of the Silver Purchase Act.”31 The Senate bowed to the still powerful silver bloc in March 1962 by tabling the president’s proposed legislation.32

  An acute shortage of small change in supermarkets and department stores throughout the country during the 1962 Christmas shopping season helped JFK battle the silver senators. The Boston Globe began a news story with “Santa Claus is being shortchanged,” and quoted John Lowe, cashier at the Federal Reserve Bank of Boston, a branch of America’s central bank: “The coin shortage is not only a local or area problem. The whole country is crying for more nickels, dimes, quarters and halves.”33 Lowe complained that “the mints, with the machinery and personnel they have, just aren’t able to meet the demand for coins.” But Mint Director Eva Adams, now wearing a hard hat as production manager, claimed that her employees “are working weekends” and the Denver Mint “has been working around the clock” to ease the shortage.34 Lowe, ever the cashier, suggested, “If people would just break open their piggy banks … it sure would help.”35

  Douglas Dillon had a better idea. JFK’s Treasury secretary acknowledged on Wednesday, January 30, 1963, the need for “extra mint facilities sometime this year,” but warned of a worse coin shortage “unless outmoded silver legislation is changed.”36 In a get-acquainted meeting wit
h Texas Democrat Wright Patman, the new chairman of the House Banking and Currency Committee, Dillon urged passage of the administration’s bill to repeal the silver subsidies and to authorize the Federal Reserve to issue notes in onedollar denominations because it would give the government more flexibility “and make more silver available for coinage.”37 He added, “The government may soon be forced to buy silver from foreign producers to make its coins. Vending machines just gobble coins and the mints have difficulty keeping up with the demand.”38

  Dillon blamed voracious vending machines for the coin shortage, but Mint Director Eva Adams cited increased accumulation by numismatists: “They seem to be collecting in large quantities on the hunch that some of the coins will be worth more ten years from now.”39 A.W. Wadsworth, manager of the cash department at the Federal Reserve Bank of Cleveland, made younger Americans the culprits just like his Boston colleague: “More people are stuffing coins in their dresser drawers and more kids are putting them in piggy banks.” These educated guesses were not mutually exclusive, and they explained the Treasury’s growing appetite for silver. During the previous three years U.S. coin production increased by more than the combined rise in all other uses of the white metal. America’s coin output rose by 31 million ounces, a jump of more than 60% between 1960 and 1962; world demand for silver by industries like photography and electronics increased by 23 million ounces, a rise of 10%; and coinage by all other countries rose by 2 million ounces, an increase of 4%.40 Treasury Secretary Dillon was right to worry.

  Congressman Wright Patman expedited hearings in the Banking and Currency Committee as a courtesy to Dillon, and the Treasury’s bill passed the House of Representatives on Wednesday, April 10, 1963. The legislation repealed the silver subsidies, eliminated the 50% tax on trading silver bullion, and authorized the Federal Reserve to issue one-dollar notes, but the heavyweight match lay in the Senate where the silver bloc had pinned legislation in the past.41 The Wall Street Journal reported that Democratic Senate Majority Leader Mike Mansfield of Montana agreed to support the administration and “not to block the measure if it can be eased through the legislative machinery without stirring up a big controversy.”42 Mansfield sounded as though he were navigating a minefield even though the white metal had increased to $1.25 in the bullion market, which should have eased western senator objections to losing the 90.5¢ floor price. The Journal confirmed the danger after the vote in the House: “The Kennedy Administration’s bill to sever the link between silver and paper currency met unexpected hostility in passing the House, 251 to 122. Supporters, who had anticipated a much bigger margin, now are worried opponents will redouble efforts to sidetrack the measure in the Senate.”43

  Formal hearings began in the Senate Banking and Currency Committee on Monday, April 29, 1963, and Committee Chairman A. Willis Robertson of Virginia opened by referencing past misdeeds in the upper chamber of Congress. He distanced himself from Senator John Sherman’s quiet demonetization of silver: “We are not doing anything about silver like they did—I think it was in 1873 when they amended a silver act and whoever was in charge of the bill conveniently omitted the power to coin silver dollars. … That change in the law slipped through the Senate with the silent tread of a cat. … We have no silent tread of the cat in this bill.”44

  The Virginia senator’s evenhandedness encouraged a member of the House of Representatives, Compton White of Idaho, to make a strange request of the Senate committee on the first day of hearings: “I would not be here this morning to urge your attention to the drastic consequences of reporting this bill in the form it passed the House if I believed the proposed legislation had received adequate consideration. … As you know, there were but four days of hearings on this very difficult issue. Of those four days only two hours were given to witnesses for the opposition.”45 White had no way of knowing whether the Kennedy administration had suppressed the naysayers, but he certainly suspected it. “I do not know if it was by design or accident that so little time was given to the study of H.R. 5389. I fear that it was the former, because the more understanding gained by Members concerning the effects of enacting the Treasury Department’s proposed solution to the silver shortage problem, the more the opposition grew. … I ask the committee’s permission to have inserted in the record a letter that I sent to House Members concerning H.R. 5389.”

  Compton White represented Idaho, which produced twice as much silver as any other state, but he avoided parochial arguments in his missive and sounded the alarm for the world reputation of the American dollar:46 “I oppose this demonetization because … [it] would be a triumph for those who advocate a monetary system based solely on fiscal credit. Ancient and modern history have repeatedly proved that money systems based solely on the promissory notes of governments, which continued to spiral themselves deeper into debt, have ruined not only the economy of those countries, but their political systems as well.”47

  FIGURE 11. This $1 silver certificate gets competition in 1963.

  Senator Alan Bible appeared before the Senate Banking Committee to support Congressman White and began with a disclaimer: “I am deeply concerned with certain provisions of this bill, H.R. 5389, now before your committee. Representing a famous state, known as the Silver State, one perhaps could draw an erroneous conclusion that my concern lies only with silver producers … [but] there is not one single operating silver mine in the great Silver State of Nevada.”48 Bible failed to mention his displeasure with JFK for the Eva Adams deception and focused his comments on section 3 of H.R. 5389, authorizing the Federal Reserve to print one-dollar bills: “The framers of our Constitution recognized that gold and silver were metals of intrinsic value and should be used in our monetary system, and the history of all nations will show that, wherever these basic metals have been done away with, the historical experience is inflation and the value of the currency goes down. I know of no exception to this historical fact. … I believe removal of silver from our silver certificates will be an inflationary move on the part of our Government. … History will again show that paper money is not valued by other nations of the world. … For the above reasons I must strenuously object to section 3 of the proposed legislation.”

  Both Bible and White sounded as patriotic as Francis Scott Key, but preventing inflation by retaining silver backing for dollar bills made sense only if the Federal Reserve was similarly constrained in issuing $100 bills. The Federal Reserve Act as amended required the central bank to hold gold equal to 25% of its liabilities to prevent it from running a printing press, but that constraint was under attack. White had warned his colleagues that the proposal to substitute one-dollar Federal Reserve notes for silver certificates was just “a step toward the complete demonetization of not only silver but of gold as well.”49 He then explained: “The [House] Banking and Currency Committee now has pending before it a bill to eliminate the requirement for the 25 percent gold backing for Federal Reserve notes.” Congressional opponents of JFK’s demonetization of silver feared an avalanche of paper money and inflation. Unfolding events would prove them right.

  Treasury Secretary Dillon testified before the Senate committee and sidestepped the inflation scare by touting the benefits of the bill: “We presently hold 1,300 million ounces of silver as backing for one-dollar [Treasury] certificates” and allowing the Federal Reserve to issue one-dollar bills to replace these certificates would assure the “adequate supply of silver to meet our coinage needs for the next ten to twenty years.”50 He told the committee that “the ultimate replacement of silver certificates with Federal Reserve notes does not in any way debase our currency,” and his assurance carried the day. On Thursday, May 25, 1963, the Senate passed the bill “To repeal certain legislation relating to the purchase of silver, and for other purposes,” erasing from the books the Silver Purchase Act of 1934 and allowing the Federal Reserve to issue one-dollar bills.51

  Support by senators from eastern silver-using states, including Thomas Dodd of Connecticut, Claiborne Pell
and John Pastore of Rhode Island, and Kenneth Keating of New York, combined with lobbying by the administration, defeated the western silver bloc by a margin of more than six-to-one.52 The Washington Post put the fall of the white metal from its monetary pedestal into context: “The historic link between silver and the country’s paper currency was unceremoniously severed when the Senate by a lopsided vote passed an act which provides for the gradual replacement of the Treasury’s silver certificates by Federal Reserve notes.”53 The Post then added a requiem usually reserved for third-world dictators: “Save for the fulminations of a few anachronistic demagogues, the silver issue has been dead since Bryan went down to defeat at the hand of McKinley, and it will be formally interred when President Kennedy signs what is probably the last major piece of silver legislation.”

  New Yorkers celebrated. A week after President Kennedy signed the bill repealing the Silver Purchase Act, trading of futures contracts on the white metal resumed on the Commodity Exchange, called Comex, located back then at 81 Broad Street in the heart of Manhattan’s financial district. On Wednesday, June 12, 1963, just before the bell rang to begin the trading day, Simon Strauss, vice president of the American Smelting and Refining Company, explained the significance of the historic moment, saying it was “28 years, 10 months, and three days” since trading was suspended by FDR’s nationalization order, and pointing out that “this was a short period in the life of silver,” one of the oldest metals known to man.54