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Treasury reserves to meet urgent industrial demand; in addition 902 million ounces were loaned to industry for recoverable applications (largely in release of copper for expendable uses). According to an Associated Press dispatch of April 10, 1958, the new United States submarines are using silver instead of lead in the storage batteries at a great saving of weight, the amount of silver required being around 400,000 ounces per vessel.

The importance of silver reserves for defense needs is accentuated by the reliance of United States industry upon imports to meet current industrial and professional needs. The day has long passed when immense United States silver production found its markets abroad. United States demand for silver in the arts and industry is nearly three times as much as is produced in the United States, while subsidiary coinage requirements, as noted above, have consumed in recent years more silver than is domestically produced. (See table 1.) At the present time the United States possesses no reserves of silver such as existed in 1918 and in World War II from which demand from abroad was met. Free silver in the general fund, as shown in table 3, amounted to 97,869,767 ounces as of June 28, 1957. In addition, the Treasury holds a quantity of silver dollars and subsidiary silver coins, totalling 190,569,421 ounces as of June 28, 1957, but this silver, it may be assumed, would be needed to meet domestic circulation requirements.

Aside from these two funds of silver there remains the stock of bullion held against silver certificates outstanding, amounting of 1,708,639,335 ounces as of June 28, 1957.

MEANING OF SILVER CERTIFICATES

The actual status of this silver fund is not generally understood. A popular assumption among monetary theorists and others is that it would be available to the Government to meet its needs in time of war. As the silver is held for redemption of silver certificates outstanding, the assumption is erroneous. Silver certificates are of the nature of warehouse receipts for silver which the Treasury keeps in its vaults as depositary trustee, the title to which rests with United States citizens and others who may be holders of the certificates. Consequently, the silver could not be disposed of by the Government except by an act of confiscation, a default of its trusteeship, and a breach of its moral and legal obligations. Congress might legislate to legitimatize the act, but it could not repair the moral damage. May we remember that among all the moneys of the world the United States silver certificate is the only paper money that is backed 100 percent by the metal that it promises to deliver on demand; is the only money anywhere that has survived two world cataclysms; is the only money that has never been in default; is the only money that has continued redeemable at its tenor at all times. This record represents a value of unique importance among the assets of the Treasury-one that should not be lightly cast away.

SILVER AND THE FOREIGN AID PROGRAM

A repeatedly heard argument for foreign aid is the necessity for the United States to meet the pressing capital needs of the underdeveloped countries. The argument is that these countries are unable to accumulate the capital needed for economic growth because of low living standards and low per capita incomes. With few exceptions, nearly all the underdeveloped countries today are experiencing a shortage of dollars and other foreign exchange. Yet, during the 19th century, when all these underdeveloped countries employed silver money as the currency and as a standard of payments, they were relatively prosperous and the "wealth of the Indies" became a proverb. They were able to export vast quantities of merchandise, so that Europe was generally in their debt. Thus, during the period prior to World War I, India regularly required about half the world's current production of the precious metals in settlement of balances owing.

Capital formation is not achieved by legislative fear, nor by monetary legerdemain, but is a slow and patient process of setting aside wealth from current income, beginning, as was the historical process in the East, with a coin. When good, intrinsically valuable coin is not obtainable, but instead debased coin or dirty irredeemable, depreciating paper, economic activity aborts, and capital is never formed. Until such a condition is corrected, capital pumped in from abroad by way of foreign aid is sterile.

RECOMMENDATIONS

There is need for silver in the monetary systems of the world just as there is need for both wheat and rice in diet. It is just as unreasonable to sell off the United States silver reserves as it would be to propose that the planting of rice should cease because we have an abundance of wheat, and Americans eat little rice. There are vast populations of the world to whom rice is a standard of the diet, and to whom the American rice production is an important source of supply, and there are vast populations of the world to whom silver has been and continues to be the popular, if not the official, standard of value and means of payment.

The policy which we recommend to your committee, therefore, is a continuance of existing United States monetary policy as stated in the Silver Purchase Act of 1934; the discontinuance of Treasury sales of silver at less than the statutory price; and a policy, in connection with our foreign aid program, of encouraging the underdeveloped countries of the world, to which we are extending technical assistance and counsel, counsel and assistance in returning to their traditional monetary systems, namely a money solidly based upon the precious metals and freely convertible into metals, as the surest bulwark for the savings of the industrious, the protection of honest industry, the guard against speculation and inflation, and the simulus to capital accumulation.

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Source: Reports of Director of Mint. 1956 figures from Handy & Harmon.

TABLE 2.-United States mine production of silver, by percent from sources

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TABLE 3.-Free silver in Treasury general fund, and issues
[In fine ounces]

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653, 119

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699, 488 765, 646 6, 779, 510 1,055, 457 565, 239 16, 223, 260 1,334, 307 565, 508 26,652, 0931, 455, 154 541, 173 40, 080, 260 1,544, 963 524, 735 49, 381, 799 1,678, 405 524, 735 40, 182, 797 1,756, 924 521, 772 9,391, 389 1,907, 463 10, 245, 338 6, 251,357 7, 140, 141 17, 379, 071 2,781, 273 52, 273, 612 2,854, 860 95, 014, 906

218, 984, 973 36, 456, 031]
189, 678, 749 20, 324, 739
179, 343, 924 26, 588, 660
143, 304, 142 9, 105, 841
169, 004, 731 28, 494, 996
150, 477, 153 54, 858, 943
106, 756, 110 54, 956, 625
61, 879, 151 59, 261, 873
16, 496, 695 14, 935, 332
24,519, 21214, 105, 523
55,054, 885 46, 231, 872
97,869, 767

191, 721 36,647, 752 25, 398 20, 350, 137 24, 419 26, 613, 079 28, 767 9, 134, 608 1,643, 412 30, 138, 408

49, 437 54, 908, 380 37, 283 54, 993, 908 35, 852 59, 297, 725

56, 15914, 992, 491 10, 320, 051 24, 425, 574 7, 476, 518 53, 708, 390

1 Figures include operative wastes.

Source: Reports of Director of Mint and Bureau of the Mint.

Hon. JAMES E. MURRAY,
United States Senator,

MANGANESE CHEMICALS CORP.,
Minneapolis, Minn., April 8, 1958.

Washington, D. C.

DEAR SENATOR MURRAY: Because the domestic manganese program is of little true meaning, in the long run, without a process to utilize our country's vast quantities of low-grade ore, we would like to call the subcommittee's attention to what has been accomplished by this company in the past 27 months.

Since January 1956, the company's plant at Riverton, Minn., has been in continuous production. During this period, 123,000 tons of low-grade (6 to 10 percent) Cuyuna Range ore have been processed, and 28,500,000 pounds of highpurity manganese carbonate have been produced. Government purchases of synthetic battery-grade manganese dioxide have been of vital importance to the development of the process, but the only presently existing Government purchase contract will be completed in June of this year.

The development of a process for the extraction of manganese from low-grade domestic ore on a commercial basis represents the culmination of the Government's entire manganese program-provided that the production facility is continued in existence. However, as noted in your subcommittee reports, there are indications that the Government will shortsightedly not take the steps necessary to keep this plant in operation. In addition to the detailed reports submitted to General Services Administration on this particular project, we have furnished a preliminary engineering study based upon the scaling up of the present plant to the level of 10,000 tons a day feed. In a plant of this size, manganese for our steel industry can be furnished from our virtually limitless low-grade Cuyuna Range ores at a price competitive with those currently in effect for imported foreign ores. We are also certain that 70 percent manganese pellet from this process will give many advantages over foreign ores containing 50 percent or less manganese. This has been clearly demonstrated in the taconite process, where they have found many advantages of a uniform high-grade nodulized product over the natural ores.

The cost of the present project to the Government bears a striking contrast to most other such projects. Out of a total investment of $3 million, $2,250,000 has been advanced by the Government to finance both plant construction and all research and development work. To date, $1,236,000 on principal and $496,000 interest has been repaid to the Government.

Under a curtailed purchase program for synthetic battery oxide over only the next 2 years, the entire advance by the Government will be repaid, plus 5 percent interest. The Government will, therefore, have actually made money while, at the same time, accomplishing its long-sought objective of developing a method to utilize domestic ores for the relief of our critical dependence upon foreign imports. A proposal to this effect is now before ODM. Because of the great importance of this proposal in terms of national defense, particularly if rejected by ODM, a copy of that proposal is attached to this letter.

There are two major points which must be constantly borne in mind:

1. The process must be kept in existence and in operation. Otherwise, there is no justification whatsoever for the huge expenditures on manganese matters over the past 30 years.

2. No process for utilization of low-grade domestic ores can compete with high-grade foreign ores unless a sufficiently large plant is constructed. With Government assistance, both of the above objectives can be obtained. Sincerely,

B. R. BABBITT,
Vice President and General Manager.

Hon. GORDON GRAY,

Director, Office of Defense Mobilization,

MANGANESE CHEMICALS CORP.,
Minneapolis, Minn., March 4, 1958.

Washington, D. C.

DEAR MR. GRAY: We wish to thank you for the time out of your pressing schedule which you gave to Governor Freeman and to us Wednesday, February 26. The next day we met with Mr. Hughes and other members of your staff. Details of some of the issues raised by Governor Freeman and by Senator Thye in his letter to you of February 14, 1958, were discussed.

The ultimate decision to be made by you goes far beyond either just this company or the Nation's requirements for synthetic manganese battery oxide. It is a decision that will mirror the Government's overall policy in manganese as to making our steel industry "free from dangerous dependence upon foreign sources of supply." (Note appendix A, Bureau of Mines testimony, House Appropriations.) It is, we submit, a major policy decision with far-reaching consequences for National Security and Defense.

This company is prepared to make the following proposal to focus attention on exactly what is required, what the cost will be to the Government and what is to be gained or lost by your decision in terms of our national defense.

PROPOSAL

1. The company will furnish, and the Government will buy for the national stockpile, over a 2-year period commencing July 1, 1958, and ending June 30, 1960, a total of 5,000 long, dry tons of synthetic battery-grade manganese dioxide meeting United States Signal Corps specifications SCL 3175.

2. Deliveries will be scheduled over the entire 2-year period. To provide continuity following completion of the presently existing Defense Production Act contract in June of this year, deliveries will be scheduled somewhat higher in the first year than in the second. Except for this factor, there will be no acceleration possible under the contract.

3. The price will be $0.28 per pound-a price somewhat lower than that currently in effect in the competitive market.

4. The Government will withhold $0.05 per pound, to be applied upon the company's debt to the Government, as determined upon completion in June 1958 of purchases and deliveries under contract DMP-16.

5. The total net cost to the Government is estimated at approximately $2,500,000.

TERMINATION OF STOCKPILE PURCHASES

The company will request no further purchases for the national stockpile unless initiated by the Government as a result of increased goals. In short, this will be the end, and the company is prepared to bind itself irrevocably to this proposition at this time.

DEFENSE OBJECTIVES TO BE GAINED BY THE GOVERNMENT

1. Freedom of steel industry from dangerous dependence upon foreign sources of supply.-Without manganese, there can be no steel. In time of emergency, dependency of our steel industry on foreign imports (85 percent of requirements) is critical. The proposed purchases, coupled with increasing industrial sales, will insure continued existence of both plant and its highly trained personnel as the only existing process on a production basis for the extraction of manganese from vast domestic deposits of low-grade ores. In time of emergency, this plant could be easily scaled up to provide manganese for our steel industry, wholly independent of foreign sources of supply and vulnerability of shipping (appendix A).

2. Justification for the Government's domestic manganese program.-Over the past 20-30 years, our Government has expended well in excess of an estimated $100 million to find an answer for the steel industry from domestic manganese ore. At no cost to the Government, by contrast, this process has proved that if a large plant is built, utilizing this process, to supply 25 percent of the steel industry's requirements, the price of manganese pellets would be competitive with foreign imports at present prices. That price would be lower than the price of foreign imports at the time of the Suez crisis-of itself an excellent barometer as to what will happen in an emergency. We do not propose that the Government embark on this program now any more than we would ask private capital to make the investment. Economic conditions do not now justify the expenditure. We cannot, however, see any justification for the past, and a continued, Government program in manganese if the Government permits the only end result of its program to vanish.

3. Maintenance of the mobilization base. The largest single domestic component of the mobilization base for synthetic manganese dioxide will be available in event of emergency as "a reliable source of supply" (Pettibone report). Maintenance of the mobilization base was used by ODM as the sole justification for a contract award to American Potash & Chemical Co. in the fall of 1957.

4. Survival, relief, and rehabilitation.-In the event of nuclear attack, an adequate supply of battery-grade manganese dioxide for emergency battery production to provide for survival, relief, and rehabilitation will be guaranteed (Pettibone report).

5. Replacement of Gold Coast ore.-Upon exhaustion of Gold Coast ores (estimated 3-5 years), a reliable supply of synthetic battery-grade manganese dioxide to meet both military and domestic requirements will be guaranteed. Adequate planning for survival, relief, and rehabilitation requires consideration for domestic needs just as much as for military requirements (Pettibone report). Exhaustion of Gold Coast ores will create a critical shortage in essential industrial and domestic requirements. A synthetic battery oxide is considered by Government technical advisers as the only sure and logical answer.

6. Research and development.-Highly trained personnel and a facility strategically located will continue in existence for whatever research and development in the manganese field is desired by the Bureau of Mines, or by other Government agencies, for defense purposes.

7. Disposal of stockpile surpluses.-The Pettibone report recommends that "sub-specification-grade metals and minerals should be disposed of, preferably in a manner designed to encourage development of processes for treating low-grade domestic ores." We are in no position to evaluate this factor in the manganese stockpile. We are sure, however, that if our Office contemplates any action to carry out this recommendation, the continued existence of the Manganese Chemicals Corp. process is the only known solution.

REDETERMINATION OF PRIORITY LEVEL

In our meeting with Mr. Hughes, it became quite apparent that the tonnage of synthetic battery oxide established several years ago as the priority level did not then take into consideration two major factors:

1. Demand for batteries, both military and domestic, in event of nuclear attack, for purposes of survival, relief, and rehabilitation.

2. Exhaustion of Gold Coast ores.

We are of the opinion that a redetermination of this goal, taking into consideration the above two factors, will result in a considerably higher goal than now exists. For that reason alone, the proposed purchases would be justified. The

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