The New York herald., 1921-09-12
A Lesson in Sound Money.

lowed TO destroy or lessen one Oh the
great food supplies OF the world.
A Lesson in Sound Money.
Students Of sound money who have
not been shaken in their faith In
GREsHAM's law--that bad money op-
crates to put good money out Of cir
culation--can find in the present
complex market for silver bullion
set Of conditions well worth analysis
for the lessons therein contained.
News comes from Washington that
the mints OF the United States are
coming new silver dollars at the rate
OF 100000 a day, or 100000 a
month, allowing for Sundays of.
These dollars are coined to replace
the 27O,000, 900 silver dollars sold to
the British Government under the
Pittman act and melted down for
shipment to India.
Only $4,000 900 silver dollars have
been coined since the work OF re-
placing these pieces began lasr
spring. For the entire recoining
process, to make 270.000.000 silver
dollars 100000 ounces Of silver
are required. This gives a coin con-
tanning seventy-seven one-hundredths
of an ounce of silver and enough
alloy to bring the weight OF the
minted piece up to eighty-ive one
hundredths Of an ounce. When the
open market price of silver is
S1.29 an ounce, or one-sixteenth the
price of an ounce of gold, which re-
mains stable at $2O.67 an ounce, the
silver metal in silver dollar is
worth as bullion exactly one dollar.
But our mints are not coming the
silver at q market price Of $1.29 an
ounce. Under the Pittman act the
Government pays 81 an ounce for
silver produced within the United
States, which is used exclusively in
the new silver dollars. There Is
therefore just n cents Of silver value
at the fixed price Of 81 an ounce in
the silver dollar. But the price fixed
by the Pittman act is artificial The
open market price for the metal is
around 62 cents an ounce. This is
the quotation for foreign metal,
which Is not eligible for coinage un-
der the Pittman act, and 1t would be
the price receivable for the metal
in the silver dollars II they were
melted and the bullion sold to any
purchaser except the United States
mints. Intrinsically there is 47s4
cents of silver value In the dollars
now being minted.
The Government has thus far
bought 100000 ounces Of silver un-
der the Pittman act. It must buy an
additional 139, 100000 ounces. AS the
production of silver in this country
Is only at the rate OF 60,000,000
ounces year, 1t will be more than
two years before the full amount OF
silver can be bought and the melted
dollars completely replaced. Mean
while there will be the two prices for
silver.
If any other country were coming
this large quantity Of silver money.
with face value of more than double
It's intrinsic value, the effect on the
existing currency would undoubt-
edly be reflected by q rising premium
on gold and its gradual withdrawal
from circulation, occasioned by the
operation OF GREsHAM's law. But our
silver dollars were replaced by Fed.
eral Reserve Bank notes when the
shipments of silver to India we're
made. The quantity OF money in
circulation was not disturbed. Its
quality, however, was impaired the.
oretically because the Federal Re-
serve Bank notes were a liability
against which the reserve was with
drawn. These Federal Reserve Bank
notes differ from the Federal Reserve
notes because the former are issued
by member banks and the latter are
liability OF all the central banks.
With the recoining OF the dollars
the Federal Reserve Bank notes will
DO withdrawn and silver certificates
issued In their place. These new
certificates will have the same re-
serve as the old silver certificates.
BY this curious operation It there
fore comes about that q silver cur
rency artincially debased passes into
circulation with value equal to
that of the withdrawn Federal Re-
serve Bank notes, and in seeming
defance--though only in seeming
defiance--of GREsHAM's law will ac-
tually improve the quality OF all our
money by the addition OF the new
silver reserve.
The key to this interesting tangle
is. OF course. the fact that our silver