The surge in the price of silver to near record levels puts us in mind of President Lyndon Johnson’s now-much-ridiculed appearance in the Rose Garden, when, in July 1965, he signed the first new coinage act since the original that George Washington had signed in 1792. It was the 1792 act that defined the dollar in terms of silver; it was silver to which the Founders were referring when they used the word dollars in the Constitution. The law that Johnson signed gave us a quarter that lacks silver — call it a fiat two-bits — which is what prompted him to utter his now a now ridiculous seeming warning.
“If anybody has any idea of hoarding our silver coins, let me say this,” drawled the Texan “Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin.” At the time, the price of silver was $1.29 an ounce, meaning that the value of a dollar, at 0.775193798 of an ounce of silver, was down, but relatively slightly, from the 0.848571429 ounces of silver that the dollar was defined as consisting of in the first Coinage Act.
In short order, Johnson’s promise proved to be hollow. The value of what was still being called a dollar began dropping. Within 15 years, the price of silver had soared $49 an ounce. That was due in part, although only in part, to the attempt of Nelson Bunker Hunt and his brother William Howard Hunt to corner the silver market. Even after the attempted corner collapsed, the silver value of the dollar lurked well below that which had obtained between the Founding Era and Johnson’s signing of the Coinage Act of 1965.
Today the value of what passes for a dollar as collapsed to less than a 27th of an ounce of silver. CNBC is reporting that silver prices have soared 60% in 2010 — meaning that the silver value of the dollar has plunged sharply this year, and it attributes this partly to strong buying of exchange-traded funds, known as ETFs, backed, as CNBC puts it, “by the physical metal.” It reports that sales of silver coins are up 22% over year earlier levels and 30% since 2007.
What catches our attention about all this is simply the drama of the collapse of the dollar against silver in the two generations since the president who signed the Coinage Act taking silver out of most of our coinage vowed there wouldn’t be such a collapse. It’s just something to bear in mind amid the latest vows from various government officials about how they have an exit strategy available from the balance sheet distortions that are being created by the quantitative easing and other programs. History teaches that in respect of money it pays to be wary of the prognostications of politicians.