America's Money Machine

254 PART III / DEBACLE OF AN IDEA
to conserve its gold stocks, with resultant rupee inconvertibility. The
consequences in India, of a vast population deprived of a traditional
money, compelled to use pieces of paper of uncertain worth, were economic
distress and political unrest. In order to provide silver to the
masses, and allay discontent, Great Britain appealed to the U. S. for aid;
an act ofCongress authorized the melting of350 million silver dollars for
shipment to India to restore confidence and retain loyalty to the British
raj.
With return of peace, Britain neglected to profit from the lesson and
proceeded to compound the error by degrading the rupee coinage to
only half silver with the difference in base metal alloy. The effect was
further erosion of Indian confidence and further unrest among the
masses. During World War II the U. S. again came to the rescue of the
British government-as well as to the Dutch and French, which had aped
British monetary policy in the administration oftheir overseas dependencies.
In the process, over 410 million ounces of silver were provided to
bolster European colonial regimes. (Fortunately for this purpose, as a
result ofthe various silver purchase acts enacted from 1876 through 1934
to absorb the shock to the mining industry from the general demonetization
ofsilver in those years, in 1942 the U. S. Treasury held an enormous
stock of silver, some 1,365 million ounces.)
The second attempt to impose a fictitious paper money circulation in
the ancient lands of the East was also a failure. By 1949 India was irretrievably
lost to the British crown, and in the following years nearly all
British colonial dependencies were swept away-a fate followed by those
of other European powers.
It is not too much to say that an underlying-and generally unrecognized-cause
ofdiscredit ofthe presiding sovereignties, and rising resistance
to their rule, was the loss of integrity of their money, carrying with
it disbelief in the integrity of the governments themselves.*
It is now necessary to notice that the Federal Reserve System suffered
the same fate as the British Indian-and within about the same time span.
Within two decades from the institution of the Federal Reserve the System
was forced to suspend gold redemption of its currency.
*It is not without interest that Reza Shah of Iran lost his throne within a decade of his
demonetization of silver and institution of a paper currency, and that the absence of good
metallic circulation among the masses at a time when wealth was pouring into the country
from abroad may have been a factor in the revolution that cost his son Mohammed Shah
his throne in 1979.