Financial History 145 Spring 2023 - Page 35

By Eric Brothers
In early Spring 1918 , Nevada Senator Key Pittman answered the telephone in his office . It was Mint Director Raymond T . Baker . His voice was tense as he urged Pittman to immediately come to the Treasury building to discuss important business concerning the production and price of silver . Pittman told Baker he was about to leave Washington for a two-day trip , and that he would meet with him upon his return . There was a pause . The Mint Director then nervously called Russell C . Leffingwell , Assistant Secretary of the Treasury , to the phone .
Leffingwell told the senator there was a situation that would greatly affect the silver industry , but that it was much more serious than that . Immediate action was needed to prevent devastating consequences threatening American success in the war effort . Cancelling his plans , Pittman rushed over to the Treasury , where he met with Leffingwell , Baker and other members of the US government . The senator was surprised to also see Lord Reading , the British ambassador , as well as representatives of other foreign nations . The tension in the room coupled with the demeanor of those present told Pittman that this was indeed a very serious matter .
He learned that it concerned the amount of silver held by the Bank of England and the Royal Mint , and a tense political situation brewing in British India .
British Indian Wartime Economy
The onset of World War I in July of 1914 saw a drop in both Indian imports and exports . Previously , Germany had been a significant importer of Indian cotton , jute , rice and coconut products . The war depressed these industries . However , within a short period a great demand for Indian products by the Allied Powers and the Orient , where the belligerent nations could no longer supply commodities , generated significant economic activity throughout India . Japan became a major
Map of the British Raj , which lasted from 1858 to 1947 . This 1909 map of India presents British India in two shades of pink and the Princely states in yellow .
Lord Reading , British Ambassador to the United States , went to the US Treasury to meet Pittman .
trading partner of the subcontinent , buying up all of the cotton available . There was a comparable market for Indian jute , tea , hides and skins , raw wool and indigo .
In a letter dated March 30 , 1918 , Treasury Secretary William Gibbs McAdoo wrote to Senator Pittman , “ The demand for Indian products has been unusual . Jute bagging is used for sugar , grain and fertilizer bags , also as outside wrappers for cotton and other products . It is also used for trench bags and for packing many articles of military necessity . No article has been found that will serve as a substitute .”
Due to the great demand for its raw materials , Indian exports were massive vis-à-vis its imports . This export / import imbalance is dramatically reflected in Indian trade with the United States from 1914 to 1919 ( see Table 1 ).
Year Ending June 30
Indian Exports to US
Raymond T . Baker , US Mint Director , was also waiting at the Treasury to meet Senator Pittman .
India and the Price of Silver
In his letter to Pittman , McAdoo stated : “ The European War has greatly enlarged the demand for silver . European countries engaged in the conflict have required unusual quantities of silver coins for their armies and for the civilian population ... The Orient is willing to accept silver in place of gold for commodities furnished by them ”— especially India —“ and it is to the interest of the United States and its allies that foreign trade balances should , as far as possible , be settled in silver rather than gold .” Thus , the price of silver steadily rose during the war , leading to significant shortages in British India and the United Kingdom itself ( see Table 2 ).
The rise in the value of silver was due mostly to the seemingly limitless demand
Indian Imports from US
Excess of Exports Over Imports
1914 $ 75,630,860 $ 11,696,094 $ 64,776,289 1915 51,982,703 10,854,591 40,286,609 1916 71,745,626 19,297,016 52,448,610 1917 102,106,682 28,396,043 73,710,639 1918 105,277,743 42,395,622 62,882,121 1919 125,471,458 50,501,740 74,969,228
Source : “ The Silver Situation in the Far East .” The Economic World , Vol . 105 . New York : Chronicle Company , April 17 , 1920 , p . 547 . www . MoAF . org | Spring 2023 | FINANCIAL HISTORY 33