These days, all that glitters is not gold. It's silver. The metal that has been used for thousands of years for currency has recently surged in value. Paul Solman looks at the continuing story of silver.

PAUL SOLMAN: In the silver pit at New York's commodities exchange, as usual, the traders are going nuts. Not so usual, the price of what they're trading, silver, itself, has soared since July, up more than 50 percent at one point. That's significant because silver's price has been in the pits for decades.

More significant, though, is that America's most famous investor, Warren Buffet, is the man behind the run-up. Before getting to Buffet, however, we're going to take a rather long look at the metal he's been buying because silver's highs and lows tell an awful lot about the U.S. economy, past and present. Investment writer Jim Grant.

JIM GRANT, Financial Reporter: For most of recorded human history silver has been money. It's shiny; it's pretty; it's a great conductor. It is as malleable almost as gold that's kind of a precious metal that also does blue collar service.

PAUL SOLMAN: Less rare than gold but still rare enough. For early civilization, silver had the key attribute of a medium of exchange. It could be subdivided to stand for the value of things you wanted but couldn't swap one for one.

No wonder that 4,000 years ago in Mesopotamia to earn was to make silver, or that 2,500 years ago the first silver coins were minted by the one guy in history as rich as Croesus, King Croesus, himself, or that a thousand years ago the English pound began life as a pound of silver, or that silver money played a major role in U.S. economic history back in the 1890's. Historian Hugh Rockoff sets the scene.

HUGH ROCKOFF, Rutgers University: The 90's were a very depressed period, something on the order maybe of the Great Depression of the 30's, very high unemployment, bank failures, the stock market has crashed, and people are looking for a way out.

PAUL SOLMAN: The Federal Reserve didn't exist yet to regulate the money supply and get us out of such crises. The U.S. could only print or mint as much money as there was gold. And gold, of course, was very scarce. Eastern business interests loved this gold standard for keeping inflation at bay. By contrast, western farmers and miners wanted to rev up the economy with more plentiful silver.

HUGH ROCKOFF: What the populace wanted was what they called free and unlimited coinage of silver. People would bring in silver; it would get coined into money. And then as that money began to flow into the banking system, you'd expect an increase in lending, and supply of money.

PAUL SOLMAN: Given the 1890's depression, silver became "the" issue of the '96 campaign. Republican candidate William McKinley upheld the gold standard. Democrat William Jennings Bryan stood for free silver to spur the economy--the start of the Democrat's century-long fight against tight money.

WILLIAM JENNINGS BRYAN: You shall not thrust down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.

PAUL SOLMAN: History has preserved Bryan's "cross of gold" speech at the Democratic Convention. But during the campaign that followed, Bryan's supporters accused him of backing off, which brings us to silver's most memorable role of all as the real star of The Wizard of Oz. The lion is actually candidate Bryan, too cowardly to lead the charge for free silver.

LION: (crying) Is my nose bleeding?

PAUL SOLMAN: Or at least that's how the populist farmers saw it. And author Frank Baum represented it in his turn of the century novel. Hugh Rockoff has written an article explaining Baum's story as an allegory about the great money debate of the 1890's, with each character playing a distinct historical part. Hexing William Jennings Bryan's lion--William McKinley, the wicked witch of the West. He came from Ohio. Sweet Dorothy stands for traditional American values. Toto is the teetotaler, since the prohibitionists were also pro silver. The decent scarecrow is the farmer.

HUGH ROCKOFF: Tin Man is the worker who has kind of lost his heart. But he's become unemployed in this Great Depression of the 1890's.

PAUL SOLMAN: Now, this may be more than you need to know, but it's so cool we just can't help ourselves. There's the yellow brick road, the false path of the gold standard; the emerald green city, wealthy Washington, D.C.; the obscure but powerful Oz, Republican Party Chairman Marcus Haddock. He's the Wizard of Oz because--

HUGH ROCKOFF: Because he's the money bags. He's the guy with the--that's really manipulating the political system and keeping the country on the gold standard.

PAUL SOLMAN: And gold, of course, is measured in ounces--oz for short--Oz. The 1939 movie took liberty with Baum's story, the biggest being Dorothy's ruby slippers. In the book they were made of silver. Dorothy had the answer all the time--a little inflation to give the economy a lift. But, sad to say, back to real life. Bryan and silver both lost.

The economy picked up smartly in the late 1890's, when gold was discovered in Alaska, Canada, and South Africa, and expanded the money supply anyway, suggesting the free silver folks had been right all along. Okay. After all that time in Oz you may have forgotten that our story was prompted by this man--Nebraska's legendary investor Warren Buffet--an esteemed corporate statesman whose most public moment may have been his rescue of the scandal-scarred brokerage firm, Salomon Brothers, in the 1980's.

Buffet's own Mutual of Omaha is Berkshire Hathaway, a company that works like a mutual fund. Its stock has risen an average of 33 percent a year for 32 years now, outpacing the market as a whole by an astonishing 300 percent. No wonder Buffet in his annual meeting remarks to shareholders has become an oracle of investment wisdom. Whatever he says goes. Larry Cunningham teaches corporate law at Yeshiva University's Cardozo Law School and has studied Buffet's investment bent.

LARRY CUNNINGHAM, Cardozo Law School: He thinks hard about who the managers are, whether they're loyal, whether they have integrity, whether they think like owners, and have an owner orientation in mind. And secondly, he thinks about the products, the brand names, products that have a franchise value, that is, the consumers recognize them instantly. If you say "soft drinks," people will think "Coke"--or shaver you think "Gillette."

PAUL SOLMAN: Buffet's now a multi-billionaire, maybe through genius, maybe luck, but surely his analysis of and zeal for favorite companies hasn't hurt. It came as a shock then that when someone went on a silver spree last summer--buying up 125 million ounces--that someone turned out to be Warren Buffet for Berkshire Hathaway.

LARRY CUNNINGHAM: They've got an enormous amount of cash, and they've got to do something with it. And the thing they like to do most with it is buy 100 percent of small, well-run businesses, or small pieces of large companies in the open market. But they'll only do that if the price is right, if it's lower than the value. They look in the market today; they don't see many opportunities, but they need to do something with the cash--they looked at silver. They thought, well, the price there is probably lower than its value--let's put the money there.

PAUL SOLMAN: So now what would lead 'em to think that silver would now be a good investment?

LARRY CUNNINGHAM: You can look at the supply of silver and the demand that people use silver in their products have, jewelers and film companies and you just look at the relationship between the demand and the supply over some period of time, and you could see the demand was creeping up, the supply was lagging behind. That suggests that the price is going to go up.

PAUL SOLMAN: But is the subsequent price rise simply a self-fulfilling prophecy, that is, is Buffet just driving up demand by his massive buying, thus squeezing the market? Because that's what happened during silver's last great moment in U.S. economic history. It was the late 1970's. Inflation was raging, and buying precious metal was a favorite way for investors to protect themselves against the dollar losing value. A couple of Texas oilmen, the Hunt Brothers, started amassing silver, much of it with borrowed money, trying to corner the market.

And they did, driving the price from $10 an ounce in 1979 to $50 an ounce the following year. But at that price people flooded the market with an excess of silver. The price dropped; the Hunts' loans were called; they had to sell; the market crashed; and with inflation ebbing, silver never recovered. By last July, it was down some 95 percent from its peak, adjusting for inflation. Warren Buffet's been accused of trying the same scheme, but, says Jim Grant--

JIM GRANT: Mr. Buffet seems not to be in the business of cornering the silver market, in the business of buying something low and selling it high, which is very interesting because it seems to be the anti-Buffet investment. There's no enterprise value; there's no great franchise value.

PAUL SOLMAN: No good managers.

JIM GRANT: There's stuff, to be sure shiny stuff, and conductive stuff, but stuff.

PAUL SOLMAN: Stuff, by the way, that not only doesn't pay you a dividend or interest rate but that you have to pay to have stored somewhere. So did Buffet know something that investors who play the silver market every day like Eric Plateis didn't?

ERIC PLATEIS, Silver Trader: I've heard discussions on these fundamentals for probably the last year and a half, that the man has been outstripping supplies for a while now, so Warren Buffet probably simply saw those numbers everybody else has seen, and was willing to take a bet on it.

PAUL SOLMAN: But if most of you thought that, why weren't you all buying silver?

ERIC PLATEIS: Part of it is a function of capital, Warren Buffet has enough capital to do what the average person down here cannot do. I mean, the guy sitting in the ring certainly is not capable of buying a billion dollars' worth of silver and socking it away because it's undervalued. Warren Buffet has the benefit of being able to do that.

PAUL SOLMAN: Buffet was able to do it, and it's worked. When he began buying in July, the metal was trading at less than $5 an ounce, and in the seven months since, it's risen as high as $7. Buffet's firm bought a staggering one quarter of the world's supply for a profit on paper of about $250 billion. So is now the time for all of us to buy silver?

LARRY CUNNINGHAM: The last thing anybody should do is follow someone else's investment lead. Just because Warren Buffet does something doesn't mean you should do it.

PAUL SOLMAN: Because that's too late already?

LARRY CUNNINGHAM: Right. It will very often be too late.

PAUL SOLMAN: Too late for us and maybe not even great timing by the master, Warren Buffet, himself. Silver was sinking last week and has proved its volatility to everyone from Auntie Em to Nelson Bunker Hart. On the other hand, who would you bet on, the old wizard of ounces or the new one?

JIM LEHRER: Silver did reach a high of $7.61 an ounce on February 5th. Today it was down to $6.01.