The Story of Silver

by William L. Silber

  Commodities trading was a physical activity back then and more than one hundred traders, all dressed in jacket and tie for the festive occasion, stood shoulder-to-shoulder around a circular railing waiting anxiously to shout their buying and selling interests to each other. A piercing ring triggered an explosion of bids and offers from suddenly animated traders, making the cavernous room sound as though a championship boxing match were underway. More than 2 million ounces of the white metal for future delivery changed hands that day, with buyers rooting for prices to increase and sellers hoping they would decline. For the first time since the Great Depression Americans could buy silver bullion like citizens of other countries to protect themselves against political uncertainty or inflation rather than hiding their intentions behind candlesticks or tea sets in the dining room cupboard. The legislation signed by JFK on June 4, 1963, repealing the Silver Purchase Act, and the launch of trading on Comex on June 12, 1963, signaled the end of silver as a dull monetary metal and its birth as a shiny hard asset.

  The free market soon accomplished what a century of political intrigue and manipulation had failed to do. On Monday, September 9, 1963, rising demand for silver spurred traders to push the price of the white metal to $1.29, the legendary monetary value established by Alexander Hamilton.55 Metal fabricators like Engelhard Minerals & Chemicals Corporation of Newark, New Jersey, a New York Stock Exchange listed company, suddenly found silver certificates the easiest way to accumulate the white metal; according to law the certificates could be exchanged for Treasury bullion at the rate of $1.2929 per troy ounce. On Thursday, September 12, Engelhard delivered a check for $65,000 and received 50,000 troy ounces of Treasury silver, the first purchase from the government since JFK suspended sales in November 1961.56 Engelhard did not, in fact, own the certificates needed to make the purchase. The formal instructions from Secretary of the Treasury Douglas Dillon permitted requests for the government’s silver bullion to be made by check to the Federal Reserve Bank of New York, a branch of America’s central bank, which would then accumulate the silver certificates to present to the Treasury.57 Access by industrial users to more than 1.5 billion ounces of Treasury silver would prevent the free market price of the white metal from rising above $1.293 per ounce … at least for a while.58

  The silver senators were unhappy. Senator Frank Church of Idaho tried to restrain the government’s sales by introducing an amendment to prohibit the secretary of the Treasury from selling silver above its monetary value, and Senator Peter Dominick of Colorado wanted to prevent the Treasury from providing silver to other government agencies.59 Both initiatives were defeated by margins of more than two-to-one. Republican Senator Gordon Allott of Colorado lamented to his colleagues, “This may be a step along the way towards devaluation of our currency,” a sentiment shared by right-wing organizations throughout the country.60

  JFK did not live to see the consequences of demonetizing silver. He was assassinated in Dallas, Texas, less than six months after he signed the bill authorizing the Federal Reserve System to substitute its paper currency for silver certificates. Concern for Kennedy’s safety in his Texas visit had increased after U.S. Ambassador to the United Nations Adlai Stevenson was “jeered, jostled, and spat upon” after a speech in Dallas in late October 1963.61 The day before Kennedy arrived an “anonymous handbill” appeared on Dallas streets fashioned like a sheriff’s circular with the words “Wanted for Treason” printed below frontal and profile pictures of the president. And on the day of the assassination, November 22, 1963, the Dallas Morning News published a black-bordered “Welcome Mr. Kennedy to Dallas” advertisement, addressing a series of unfriendly questions to the president. Supporters of the rightwing John Birch Society, including Texas billionaire oilman and future silver speculator Nelson Bunker Hunt, paid for the advertisement.62 The John Birch Society was dedicated, first and foremost, to destroying a perceived communist menace in the United States and to eliminating anything not sanctioned by the Founding Fathers, including the Federal Reserve System.

  The Warren Commission concluded that Lee Harvey Oswald acted alone and dismissed any connection with the John Birch Society, pushing to the bottom of the conspiracy scrap heap the theory that Kennedy was murdered because he demonetized silver, a suggestion as fanciful to contemporaries as putting a man on the moon. Nevertheless, the phrase “Wanted for Treason” recalls the words of General A.J. Warner of Ohio, who delivered the opening address at the National Convention of the American Bimetallic League on August 1, 1893. Warner said in reference to Senator John Sherman, architect of the Crime of 1873: “There was but one man in the United States Senate who knew that the Act of 1873 demonetized silver, and yet he has never been hanged or shot for treason.”63

  Virginia Senator Robertson had distanced himself from Sherman’s treachery at the opening of hearings on JFK’s demonetization bill but the century-old misstep still shadowed the upper chamber of Congress and continued to pit East against West in a battle for economic dominance. However, murder for the sake of silver dollars seems excessive, a primitive response to a commercial conflict, perhaps understandable in the more violent nineteenth century but inconsistent with the more civilized twentieth. Or not?

  CHAPTER 12

  * * *

  LBJ NAILS THE COFFIN SHUT

  AT 2:38 P.M., FRIDAY, NOVEMBER 22, 1963, A SOMBER Lyndon Baines Johnson raised his right hand like a reluctant volunteer and was sworn in as president of the United States aboard Air Force One, the plane taking him and JFK’s body from Dallas to Washington, D.C.1 Jacqueline Kennedy, wife of the slain president, stood by Johnson’s side watching Judge Sarah Hughes administer the oath of office and the orderly transfer of power in midst of an unfolding trauma.2 It also meant that LBJ inherited the unfinished work of John Fitzgerald Kennedy, a bequest that resembled a vial of nitroglycerine.

  Five days later, Wednesday, November 27, 1963, Lyndon Johnson gave his first formal address as president of the United States to a Joint Session of Congress. His full six-foot-four-inch frame standing erect behind the lectern on the dais of the House Chamber, he began with the now-famous words, “All I have I would have given gladly not to be standing here today.”3 It may have been an exaggeration, but he followed with a promise to continue JFK’s legislative agenda, including an item that would test the sincerity of his commitment: “No memorial oration or eulogy could more eloquently honor President Kennedy’s memory than the earliest possible passage of the civil rights bill for which he fought so long.”4

  Fervent opposition by Southern Democrats in the Senate had throttled JFK’s civil rights initiative, suppressing the legislation with the genteel protocol of the upper chamber of Congress. LBJ, who had served as Senate majority leader and wrote the book on political persuasion, succeeded where JFK failed, using his Texas drawl to convince wavering former colleagues from border states to vote for the Civil Rights Act of 1964. The legislation was Johnson’s crowning achievement as president. LBJ also inherited Kennedy’s Vietnam brush fire but stoked that misadventure into an unpopular war. Vietnam was a failure that would tarnish his legacy. Historians have scrutinized Kennedy’s and Johnson’s records on civil rights and Vietnam but have ignored another joint venture of these two men who remain tethered by fate: the war against silver. LBJ finished what Kennedy started by burying the remaining link between money and precious metals in the United States, a disconnect that fueled the Great Inflation of the 1970s and almost ruined the American economy.

  Treasury Secretary Douglas Dillon had testified in the Senate on April 29, 1963, that passing JFK’s legislation authorizing the Federal Reserve to print one-dollar bills would assure the “adequate supply of silver to meet our coinage needs for the next ten to twenty years.”5 Less than a year later, on Monday, March 23, 1964, a crowd of more than a thousand people ignored Dillon’s prediction and surrounded the historic U.S. Treasury building in Washington, D.C., like it was Macy’s on Black Friday, waiting to buy silver dollars.6 Few Americans used the bu
lky coins in daily life, but they had been last minted in 1935, and the growing population of numismatists found them irresistible. According to Franklyn R. Bruns, sales manager for coin and stamp collecting at the Woodward and Lothrop department store in Chevy Chase, Maryland, “People are just hoping they will come across some of the silver dollars with rare dates or rare mint marks. … For instance, … one of the 756,000 silver dollars minted in 1879 in Carson City, Nevada, would bring a good price. One dealer said … he would pay from $40 to $70 for an ‘1879CC’ which was uncirculated.”7 America’s obsession with coin collecting rivaled the craze for a new music group, the Beatles, who had arrived in America a month earlier.

  Failure by the House of Representatives to allocate funds for new coinage of silver dollars had triggered the rush to get the remaining stock in Treasury vaults, but that was not the last word. Support for the production of more silver dollars came from high places beyond the Continental Divide, according to the Boston Globe: “A posse of lawmakers, headed by Democratic leader Mike Mansfield (Montana), cantered onto the Senate floor Saturday to defend the cartwheel—the ‘hard money’ silver dollar which is the favored coin of the realm in the Great West.”8 Mansfield, the majority leader of the Senate, sounded as though he regretted supporting JFK’s demonetization program, saying that cartwheels “should not follow the buffalo, the whooping crane, the eagle, and the gold piece into oblivion.” He said that even thieves preferred “hard money,” explaining that bank robbers recently took $20,000 in silver dollars from the bank in White Sulphur Springs, Montana.

  But the public demanded more than just silver dollars. The U.S. Mint had inadvertently stoked the coin collecting frenzy by unveiling the Kennedy half-dollar on Tuesday, March 24, 1964, a day after the crowd stormed the Treasury building for the dwindling supply of cartwheels. The new fifty-cent piece with the profile likeness of the late president on the front gave the still-grieving public a sentimental reason to hoard the new coin, forcing banks to ration the supply among their depositors. The Charter Oak Bank and Trust Company in Hartford, Connecticut, limited one to a customer and distributed a thousand coins in one day. A man standing in line at the door said, “They’re going like wildfire.”9 The Treasury, which had suspended distribution of silver dollars on March 24 to allow customers to get the Kennedy halves, put a limit of forty per person even though $26 million coins had already been produced and more were on the way.10 Scarcity in the nation’s capital led to rumors of bank tellers selling Kennedy halves above their face value, forcing Richard Norris, president of the Riggs National Bank to say, “It is possible,” but none of their employees “would be allowed to engage in this sort of activity.”11 Few would have asked his permission, of course.

  More than 160 million Kennedy half-dollars minted in 1964 would prevent the coin from becoming a valuable collector’s item like the 1879 Carson City cartwheel, but people could not get enough of them, perhaps because word had spread that silver was a bargain at the Treasury’s price of $1.293 per ounce.12 According to the Chicago Tribune, “Many experts believe the silver hoarder is the biggest single cause of the coin shortage plaguing the country.”13 The price of silver would have to go above $1.38 ¼ per ounce to make circulating dimes, quarters, and halves worth melting for their bullion value, but that was only 7% away and until then budding numismatists could enjoy their new hobby.14 Coin collectors also searched for nickels minted between 1942 and 1945, when silver replaced the coin’s nickel content, which was used in armor plating for combat vehicles.15 Those wartime nickels had a little more than .05 ounces of silver, making them worth more than 7¢ at the current price of $1.293 per ounce.16 Coin collectors had become closet silver speculators and the current profits were just an appetizer before the anticipated feast if silver exceeded $1.38. It was as though Americans had heard the opening bell at Comex signaling a new beginning for the white metal as a hard asset.

  FIGURE 12. Speculators collect silver coins.

  Vanishing nickels, dimes, and quarters tested the ingenuity of American business. The renewed coin shortage hit supermarkets the hardest during the first half of 1964, according to Clarence Adamy, executive vice president of the National Association of Food Chains: “Our stores have been spending countless hours working deals and running around to locate the coins they need but the situation is now desperate.”17 The Jewel Tea Company, with 350 supermarkets in the Midwest and New England, proposed issuing its own scrip, private paper currency in various denominations. The notes were about the size of a personal check and were color-coded to avoid confusion: blue for nickels, green for dimes, and orange for quarters. Stores did not require customers to accept scrip, but the company promised to redeem the colored notes for real money (in dollar increments) or in exchange for other purchases. The treasurer of the Kroger Company of Cincinnati, a 1,400-store Midwest chain, confirmed a similar plan for their customers. This clever response to the coin crisis displeased the U.S. Treasury.

  Treasury rules prohibit private groups or individuals from issuing any “note, check, memorandum, token or other obligation for a sum less than $1 intended to circulate as money.”18 A week before the Jewel Tea proposal the Treasury had impounded wooden “nickels” about the size of a poker chip issued by the First National Bank of Monroe, Wisconsin, which were circulating among local merchants. The bank president, Edward R. Adams, said, “The Mint was unhappy,” but he ignored the reprimand because he was about to retire for the same reason he authorized the ersatz nickels—the coin shortage.19 The Treasury confiscated most of the 20,000 wooden coins that had been issued except for those hoarded by collectors who were paying $11 per chip now that the supply had been cut off.20 The U.S. Treasury then rejected the Jewel Tea Company proposal even though their notes were not designed to circulate.21 Uncle Sam does not like competition.

  President Johnson had been preoccupied with the civil rights bill, but in May 1964 he responded to the accelerating coin shortage by allocating funds to permit the Denver and Philadelphia mints to work around-the-clock, seven days a week, as though they were fighting a war.22 He resorted to some budget trickery to pay the mint workers because Congress, deadlocked over civil rights, had failed to appropriate the necessary funds.23 The president also favored Majority Leader Mike Mansfield and other western senators by signing legislation on Monday, August 3, 1964, to produce forty-five million silver dollars at the Denver mint.24 LBJ often displayed his western roots, wearing a fawn-colored Stetson hat like the Texas rancher he was, and promoted the Denver mint because the nearby Nevada casinos feasted on the cartwheels fed into their slot machines. To force the silver dollars into circulation and keep them away from collectors, who valued uncirculated coins, the mint proposed to distribute a few thousand new cartwheels each month to banks in the Rocky Mountain states. LBJ also signed a bill authorizing the Treasury to freeze the 1964 date on all new coin production, minimizing future scarcities that enhance a coin’s value to numismatists.25

  It was a losing battle.

  Silver speculators masquerading as coin collectors knew that the Treasury had been disposing of its vast supply of bullion, holding the price of the white metal at $1.293, but when that ended the excess demand would blow the roof off the government-imposed ceiling. The Treasury’s stock of silver declined by 366 million ounces during 1964, a drop of almost 25% compared with annual average declines one-third the size since 1960.26 The bulk of the 1964 decline—203 million ounces—went into increased production and distribution of dimes, quarters, and half-dollars, almost triple the annual average increase in coinage since 1960.27 The Wall Street Journal reported on December 28, 1964, that the Treasury would delay minting the silver dollars LBJ had authorized five months earlier “so that all the department’s equipment can be used to make quarters, dimes, and other lesser coins … for which there is no substitute.”28 But that was like battling a forest fire with a water pistol.

  The Treasury’s 1.2 billion ounces of silver bullion looked respectable in December 1964,
but about 950 million ounces of that hoard backed the more than $1.2 billion silver certificates still outstanding.29 The Treasury retired $645 million certificates during the year, exchanging most of them for Federal Reserve notes as planned, but speculators and industrial companies like Engelhard Minerals & Chemicals Corporation had used certificates to acquire more than 140 million ounces of the Treasury’s white metal.30 Worldwide consumption of silver exceeded new mine production by 200 million ounces a year since 1960, compared with an annual average of less than 75 million ounces during the 1950s, and the excess demand rose despite the increase in prices.31 Prospects for further price appreciation encouraged long dormant producers like the old Smuggler Mine near the ski slopes of Aspen, Colorado, to reopen, described in the press as “It’s Silver Time in the Rockies as Mines Come Alive,” but that activity would not restore balance.32

  The New York Times showed a picture of jagged mountain peaks framing Ouray, Colorado, where five hundred men rode clattering rail cars around a snow-covered pine forest and into the Camp Bird Mine of the Federal Resources Company.33 Benton Bailey, a long-time engineer at the Camp Bird Mine, recalled when caravans of two hundred pack horses carried ore from the mines and said that “the industry is in for good times again” because many mines “were shut down before the coming of modern technology.”34 But mechanization could not overcome the cold calculations of hardened speculators, who knew that price increases in the white metal failed to expand production significantly because most silver was a by-product of mining base metals. When lead and zinc rose from 8¢ a pound to 15¢, silver production expanded alongside those metals, and miners simply scooped up the extra profits from high silver prices.35 A Treasury staff study confirmed, “Variations in pure silver production … do not seem to bear any simple relationship with silver prices.”36