Weaker minds in the U.S. Senate are determined that China revalue its currency. Up, up it must go, in relation to the dollar. Leaving aside the abysmal logic employed by Sens. Schumer and Graham, the historical precedent of America’s revaluation of the Chinese currency is a sorry episode of U.S. foreign policy. The earlier generation of weak minds caused nothing short of starvation across the Chinese Republic.
By 1930, China and Mexico were the two notable countries that still employed a silver standard. (There is a long history of silver standards. The pound sterling is one legacy. By the late 19th century, though, most countries had attached themselves to the gold standard.) Silver traded more like a commodity than it might have if it still circulated as money. In step with most raw materials, the price of silver fell 52% between 1928-1932.
That was an unpleasant period in the United States, but not so much in China. This is a relative comparison. China had not escaped the worldwide Depression. Between the high of 1929 and September 1931, wholesale prices had fallen 29.5% in the U.S., roughly the same across Europe, but only 20% in China. In the words of Roy Jastram, author of Silver: The Restless Metal : “The Senate Foreign Relations Committee wanted to raise the price of silver so that China could buy foreign goods.” The motivation is no different today. Substitute “Senate Finance Committee” and the match today is exact.
A higher silver price — in theory — would increase the Chinese capacity to buy more American goods and pull the U.S. out of the Depression. Economists buttressed the politicians’ yearnings. John Maynard Keynes wrote a letter to a House of Representatives’ committee. Keynes believed there “was good reason to suppose that higher silver prices would boost Chinese imports and diminish exports by raising costs of production in world terms. This would cause China to stop buying silver and to export it instead, to make up for her unfavorable balance of trade.”
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