Sunday, February 24, 2013

The Collapse of the Silver Standard

Comstock Miners c. 1885
Orthodox economic theory asserts that the disappearance of silver from the economic lexicon was due, at least in the United States, in large measure to the abundance of silver, and its consequent debasement. Professor Fekete offers a more interesting and compelling theory by charging the collapse of silver to an international banking cartel seeking to obtain a stranglehold on the world’s money supply.

We should note that Dr Fekete is not your standard issue conspiracy theorist – a label from which he explicitly attempts to disassociate. He is a highly distinguished mathematician by métier and monetary scientist by avocation, having established – without conscious effort – the field of what we at the The American Chronicle call auroeconomics, in conjunction with a renaissance in Austrian economics, a flame kept alive by the Ludwig Von Mises Institute, among others.
In fact, Fekete offers an experiment to his hypothesis which would potentially prove or disprove his speculation. He outlines the data analysis required to verify his theory in his article which we cite in our References section. We urge our more scholarly readers to inspect it. It is this scientific and scholarly approach which earns Fekete our undying admiration.
However, leading up to this experiment, Fekete presents a fascinating case for the collusion of international banksters in demonetizing silver which precipitated the evaporation of its value. The primary predicate for these collusions was that banksters found gold an easier target to manipulate since its mining and availability were in fewer hands than silver. As a rarer substance, its stores and mines, as well as its value, would be easier to manage .
While Fekete avoids examining the reasons for seeking such control, we do not. There has long been a cabal of plutocrats and intellectuoids who seek to control the world because they believe themselves to be smarter than everyone else, and should thus dictate their lives. Having accumulated so much wealth, what else is there to do but control men’s souls?
According to the establishment economists, silver’s price collapsed due to its over abundance, particularly in the United States, such as that found in the fabled Comstock Lode in Nevada. Since silver was now too plentiful, it lost one of its primary characteristics as money – namely that its price was no longer inelastic. As such silver as money went the way of the dodo bird even if it took nearly a century until 1965 to accomplish.
Fekete notes two alternate, possibly synchronous, events explaining the collapse of the price of silver and its subsequent demonetization. One is the Franco Prussian war of 1871 in which the victor Germany demanded and received from France 1 billion dollars worth of gold. This hoarding of gold anticipated the last closing of any mints to the free mintage of silver by the Latin Monetary Union in 1878.
Ten years earlier, in 1868, the first shot against silver in America was fired when Senator John Sherman – the same man who gave us the Sherman Anti-Trust Act – proposed legislation demonetizing silver. Although unsuccessful at first, demonetization occurred through Coinage Act of 1873 which closed the mint to the free coinage of silver.
During the same period, the Resumption Act of 1875 authorized the retirement of Greenbacks by redemption in gold specie beginning in 1879. Those controlling the levers of power conspicuously avoided redemption in silver, which would have maintained bi-metalic money. Seeing the divergence – most likely through engineering it – certain banksters began a 10 year program of reconfiguring their assets from silver to gold.
This is the point at which Fekete introduces his experiment of measuring the standard deviations of various gold and silver spreads to see if causality can be identified in the banksters’ actions by measuring prices of commodities and mining shares.
Debts once contracted in silver would now be payable in gold, thus extracting a pound of flesh from the debtor – in this case the Confederate mortgagor, among others. With silver demonetized, its demand quickly waned while that of gold sharply rose. The sudden demonetization of silver both in Europe and in America would explain the deflationary tendencies associated with the gold standard because heretofore the majority of wealth was held in silver given its greater availability.
The friction between the gold bugs and the common man came to a head in the presidential campaigns of William Jennings Bryan - truly a man of the people - who deplored this cross of gold on which the multitude were being crucified.
Fekete notes that the unconstitutional closure of the mint to silver was ostensibly a protective measure to preserve the mint’s supplies of gold since they was under constant pressure due to arbitrage in America and overseas – particularly India and China – where silver had a greater value. But this explanation is a snow job designed to confuse rather than explain. The deliberate actions of politicians and banksters suggest a more duplicitous operation of defrauding large groups of peoples of their wealth. The elimination of the false ratio between gold and silver would have handily rectified the price discrepancy which motivated the arbitrage trade.
While we have omitted some important aspects to Fekete’s dissertation, we have presented enough to whet some readers’ appetites – we hope. The main point is that the opening of the western silver mines did not precipitate the collapse of silver prices – rather its legal demonetization was the causal factor – both in America and Europe.

Antal Fekete, The Silver Saga, November 30, 2012,

Copyright 2013 Tony Bonn. All rights reserved.

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