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Did cutting silver out of the money system lead to killing the Gold Standard...?

RECENTLY Tom Jeffries of spoke to David Morgan of about the role of gold and silver as units of money and currency.

HoweStreet: Everybody's talking about gold's place in the "new world order". But let's not get spooky, folks. How would you expect silver to act in the event of a world oligopoly, David?

David Morgan: I think that, as I wrote so many years ago in Silver Investing Rules, no one likes to be a prophet of doom, but silver is the money of last resort, and I still believe that. However, gold certainly has a higher monetary aspect to it as basically a store of wealth, a store of value, and a safe haven. Silver has those qualities because it's an industrial metal as well.

But from a practical perspective, silver is the one that you'd be actually using in times of crisis. Not that you wouldn't use gold, but if something happened and you needed to get a loaf of bread, a gallon of gas, pay rent, or keep your landlord off your back, and you had some silver coins, that would be a lot more advantageous to you than a Gold Bar, which would be pretty hard to divide up and pay your landlord or whatever.

So silver really has been money in more places for longer periods of time than gold has, and whenever I make that statement it seems to get some people upset, but it's a fact, it can't be disputed. Through all of recorded history, silver has had far more functionality as money than gold.

Howe Street: I guess that begs the question, what will central banks and those wily governments out there do to resist the allure of silver for the average investor?

David Morgan: It's a tough one. To really get an in-depth answer, you should go to and go into the archives and read everything Charles Savoie has written for the last decade. Readers get an eye-opener on how important silver is as money, what the central banks really think of it through history, and why they basically demonized and demonetized silver as their main concern so many years ago, hundreds of years ago, really.

You're looking back to, say, the Crime of 1873, some 130 years ago. And once that was accomplished, we went to the gold-only path. And then you had a monetary metal that was much easier to control, because the banks had most of the gold anyway. So if the banking community and financiers got rid of silver, you didn't have a problem with the people (or the peons and underlings, as the bankers view us), and you just had gold, and they owned it, so they could make the rules.

As you know Tom, but very few do, The Wizard of Oz was basically a metaphor for going to the gold-only standard. There's a good article on the Gold-Eagle website about how the gold-only standard eventually leads to the fiat system, but when you have bi-metallism, which is where you have both gold and silver circulating freely – and not necessarily in ratio fixed by government, but what the market could decide – you have a much freer and safer system.

You have a lot more stability in the system than you have on a gold-only standard, but very few people know that, very few people believe it, very few people study it. And if this is the government of the United States, supposedly of the people, for the people, and by the people, you should look at what the people use as money and why they use it.

Of course I take that perspective and because of that, I'm very, very biased toward silver being not only a monetary metal but also probably the most high-tech industrial metal required for today's world.

Howe Street: The old Latin phrase comes to mind, cui bono, when we're talking about the new exchange-traded funds in Gold and silver. "Who benefits?" Is this Goldman Sachs or is this one of the big guys behind the curtain – as in The Wizard of Oz?

David Morgan: It's the banks. From my perspective, if you look at the Barclay's Silver Trust, its silver is held in London. When Buffett bought 129.7 million ounces of fine silver off the Comex future market, once he received the silver it ended up in London.

Then Buffett sells his silver and then the silver ETF arises in London, so now Barclas bank has some control of a great quantity of silver. Just look at the two best studies on the silver market, depending on which one you choose. I'm going to choose the CPM Group (even though I'm very close to the Silver Institute). In any event, you're looking at maybe 500-600 million ounces of fine silver in 1,000-ounce bar form. So, the iShares has almost 300 million, which means they have three-fifths, some 60%, of the world's silver supply sitting in their bank. Which is a pretty healthy amount, but the point is that the banks now – or a bank, Barclays – has silver in their bank again, which is something that they haven't had up until the creation of the ETF.

Howe Street: Tell me something about the Silver Summit in Spokane.

David Morgan: I did a webinar with Hugo Salinas Price in Mexico and he actually asked that I would be the interviewer, which I consider to be an honor. I met him in person many years ago. Most people don't know that Hugo Salinas Price has started a foundation (I don't know if it's technically a foundation, but a group) that is looking into using silver side-by-side with the Mexican peso, and this story has been out there for a very long time. It recently got shot down by, guess who, the central bank in Mexico. But the idea to put money into circulation just in one nation-state alone has huge significance, and as Hugo himself said (I'm paraphrasing), even if it doesn't happen the idea of it happening has a lot of power, because people will realize honest money works.

In the United States, some people are two paychecks or three paychecks away from bankruptcy, thus Gold is the last thing on their mind as far as what they can afford. But they certainly could afford some silver, so I think you're going to see silver really, really take off once we get near the end of this great credit debacle that we're now experiencing. Again, though, I want to caution everybody: I don't see that happening in 2009. I'm looking for the final wrap-up in this thing to happen somewhere around the 2012 timeframe.

Founder of the Silver Investor, David Morgan began investing in stocks before turning 18 years old, and was early to this decade's bull market in silver, noting to his subscribers in 2000 that silver was selling for the lowest inflation-adjusted price ever. Holding degrees in both Engineering and Finance & Economics, David Morgan is a respected analyst and commentator on silver investment at sites including Gold-Eagle, SilverSeek, MarketWatch and Resource Investor.

See full archive of David Morgan articles

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