Henri Cernuschi.

Nomisma; or, Legal tender. online

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^v JAN 111893 . 189

^Accessions No. M^ Q fr . CA/ss M).









540 & 651 BROADWAY.








February 5, 1877 : 5

February 6, 1877 53

February 7, 1877 ?1

Plan for Resumption 72

February 8, 1877 92


I. Theory 108

II. Application 112



I. The Silver Crisis 120

II. The Indian Exchange 122

in. The Sufferings 124

IV. Inaction 126

V. The Expedients 126

VI. The Only Remedy : Universal Bi-Metalism 128

VII. Objections 129

VIII. The Irrevocability of the 15^ 132




I. Is the Bi-Metallic System practicable ? 139

II. Is the Bi-Metallic System desirable ? 145

in. " Free-Trade " Objections answered 161



WASHINGTON, February 5, 1877.

THE commission met at 1 P. M. Present : Senators
Jones, of Nevada (chairman), Boutwell, and Bogy ; and
Representatives Willard and Bland.



Question. State your name and occupation. An-
swer. Henri Cernuschi. I was an LL. D. and a gradu-
ate at Pa via, Italy, in 1842. The political events of
1848 caused me to leave my native country, and I came
to Paris, where I became a banker. In 1870 I retired
from business.

Q. Where do you reside at present ? A. In Paris.

Q. Have you noticed the recent marked divergence
in the relative value of gold and silver ? A. I have.


During several years I have been studying that matter.
Before proceeding further, Mr. Chairman, if you will
permit me, I would like to make a remark in connec-
tion with the purpose of my visit to this country. I
want to declare that I have no mission at all from any-
body, and that no government has charged me with
the business of coming here and defending the interest
of any country. In October last I received from you a
communication which you had doubtless addressed to
many people, inviting them to give in writing the evi-
dence applied for in that inquiry. In response to your
invitation I answered that, if agreeable to the commis-
sion, I preferred to come and give my evidence in person.
You were kind enough to answer that, if I came, I would
be welcome. I am very happy to visit again this great
country, this free and necessary people. But let me
repeat, that I am here only as a witness to give expres-
sion to my individual opinions, and not as an agent of
any authority, governmental or otherwise.

Q. To .what cause or causes do you attribute the
great changes to which I have referred as having tala-n
place in the relative value of the metals, gold and sil-
ver? A. I would like, Mr. Chairman, if you Avill
allow me, to give some general idea about money, be-
cause this is a question of theory ; and without a pre-
liminary statement of my monetary theory my answers
to your questions would not be fully understood by the


Q. I understand that, in order to make your answer
to the question more intelligible, you desire to give a
general idea of the nature and functions of money. You
will proceed with your answer in that form which is
most in accordance with your object. A. I will give
you my definition of money : Money is a value seated
ty law to fie a scale of valuation and a valid tender for

This definition of money is one which embraces
at the same time paper-money and metallic money.
Paper-money certainly is an inferior money, and metal-
lic money is a superior money ; but they are both
money, and that would be an incomplete definition
which did not embrace them both. "A value created
~by law" Certainly every one understands that, as re-
gards paper-money, the value is created by law ; but it
is, perhaps, not easy for every one to admit that, with
regard to metallic money also, the value is created by
law. It is, however, the fact. If you suppose that
gold is not money, is not legal tender if you suppose
that silver is not money, is not legal tender the value
of gold and the value of silver is lost. You have seen
lately the effect of stopping the coinage of silver in
Europe ; but suppose that the coinage of silver is
stopped everywhere ; suppose that, after you have com-
pleted the coinage of the $50,000,000 of fractional cur-
rency which you are at this moment coining, India
would also stop the coinage of silver (as has been sug-


gested elsewhere), what would be the value of silver ?
What would be the situation of the miners ? The silver-
mines would be stopped. These mines can only work
when they are sure of producing not simply a metal
but a legal tender. And what I say of silver, I say in
the same manner of gold. If England, France, Ger-
many, and the United States renounced the use of gold
money il everywhere only silver money is adopted
and gold money abandoned all the gold will remain
without value ; all the shareholders of the gold-mines
will be ruined, because the value of their shares de-
pends upon the legal fact that the metal extracted is
legal tender. I do not say that some of the mines will
not remain open. I would illustrate my meaning by
citing the probable consequence to follow with refer-
ence to the opium of India. If China should make
a law forbidding the use of opium, or if great tem-
perance societies whose object was to restrain the use
of opium should become popular in China, what then
would become of the poppy cultivated in India ? The
culture would be abandoned. Yet opium, nevertheless,
would not disappear entirely. The opium of Smyrna,
on the Mediterranean, would still be cultivated as a
medicine. The same process of reasoning applies with
reference to gold and silver. This fact, that money is
a value created by law, is one of great importance, and
I can cite you the highest authorities in proof that what
I say is true.


Q. Supposing the gold and silver metals to have no
other use than as money, would they then maintain
the same value that they now maintain as money ?
A. There would be a diminution of their purchasing-
power, because the purchasing-power of money is in
direct proportion to the volume of money existing. If
all gold and silver are used solely as money, all the
ornaments and all the jewelry will be melted and
coined, and the volume of money will be increased. It
will be exactly as if a new mine of money had been
opened. And the volume of circulating money being
made larger than before, there will be a corresponding
diminution in the purchasing-power of every metallic

Q. If there was no gold or silver in existence to-day
except that which was in use as money, would that fact
the fact that there was no demand for eitherof the
metals in the arts affect their value as money ? A.
There is always the same phenomenon. The quantity
of gold and silver circulating would remain the same
as at present, and its purchasing-power would remain
the same.

Q. Does the fact that there is a demand for both
gold and silver for purposes other than those of money
have any tendency to increase the value of the gold and
silver used as money ? A. The employment of gold and
silver in other ways than as money is a contraction of
the monetary material ; but the people who use this gold


and this silver in the way of ornament do never give
for it more than the intrinsic that is to say, more than
the legal value, as regulated by the mint-law. If a miner
assumes to sell the quantity of gold of which a dollar
is made at a price higher than a dollar, the jeweler will
take the metal he wants, from the general circulation,
and make the ornaments with it.

Q. Does the fact that gold and silver are used large-
ly in the arts, and otherwise than as money, tend to
give those metals stability in value, and to cause the
populations of the world to accept them as money more
freely than they would otherwise accept them? A.
Generally speaking, I can say that the quantity of gold
and silver, as employed in ornaments, is very small in
comparison with the quantity of gold and silver which
circulates as money. The true reason why gold and
silver are good money is not because they are, as it is
said, precious metals, but because the issue of that mon-
ey is not in the hands of a government. When you
have paper-money, you are never sure of the quantity
of money to be issued. A country may be imprudent,
and may be liable to great danger in the issue of paper-
money. It may be at the mercy of a possibly bad ad-
ministration. The issue of gold and silver is a natural,
an automatic issue, which no one can control. It is in-
dependent of human agency ; and it is for that n MX.II
that gold and silver are adopted by more than one coun-
try as money. And, then, the merit of metallic money


is, that it can be an international money. Yes, metallic
money is issued by Nature, and that, being the fact, it
can be an international money. Paper-money, being
issued by man, has this great defect, that it is only a
national money, which is incapable of being paid abroad.
In the case of a war, it can be necessary for a country
to issue paper-money. Necessity is the greatest law of
human nature. Then, in issuing paper-money, you can
dispose immediately, for military purchases abroad, of
the metallic treasure previously outstanding. Mr. Chair-
man, the doctrine that money is a value created by law
was promulgated twenty-two centuries ago. It was ad-
vanced by Aristotle, the great philosopher so practical
and so positive, that I would dare call him an American
philosopher. I quote from his writings :

" Money (nomisma in Greek) by itself is but a frivoli-
ty, a futility, a trifle, and has value only by law (nomos in
Greek), and not by nature ; so that a change of convention
between those who use it is sufficient to deprive it of all
its value and power to satisfy all our wants. (Politico,.)

" In virtue of a voluntary convention, money (nomis-
ma) has become the medium of exchange. We say ' no-
mismaj because it is not so by nature, but by law (nomos),
and because it is in our power to change it and to render
it useless." (Ethica.)

After Aristotle we have the Pandects of Justinian,
the great source of all modern laws. The following is


from the Pandects, tenth book. The sentence converted
in law by Justinian had been written at the beginning
of the third century by the famous jurisconsult Julius

" The origin of buying and selling began with ex-
change. Formerly money was unknown, and there existed
no terms to differentiate merchandise and price, but every
one, according to the wants of the time and circumstances,
exchanged things useless to him against things which
were useful, for it happens frequently that one is in need
of what another has in excess. But as it seldom coin-
cided that what one possessed the other wanted, and con-
versely, a material was * elected ' whose legal and per-
petual value remedied, by its homogeneity, the difficulties
of barter. This material being officially coined, circulates
and holds its power, not so much from its substance as
from its quantity ; since, then, each of the two things
exchanged is no longer called merchandise, but only one,
the other is called price."

So Justinian says that the power of money resides
not in the substance, but in the quantity. The quantity
is exactly that which Nature produces.

I have given a quotation from the Greek, and a
quotation from the Latin ; I will now give an English
quotation. It is from Locke (1695). Locke was a
mono-metallic silver man, so to speak, as he considered
that only silver is good money.


When Locke says " silver," he means "money!"

" Silver is the instrument and measure of commerce in
all the civilized and trading parts of the world.

"It is the instrument of commerce by its intrinsic

" The intrinsic value of silver, considered as money, is
that estimate which common consent has placed on it,
whereby it is made equivalent to all other things, and
consequently is the universal barter or exchange, which
men give and receive for other things they would pur-
chase or part with, for a valuable consideration ; and thus,
as the wise man tells us, money answers all things."
(" Works of John Locke," vol. v., tenth edition ; London,

The " common consent " of Locke is nothing but
law. The silver mono-metallic law of Germany, before
1871, expressed the common consent ; and in this man-
ner the bi-metallic law of France was the expression
of the common consent.

Mr. WILLAKD. In order that a point which has been
suggested by the remarks of the witness may not be
overlooked, I desire at this time, with the permission
of the chairman and the other members of the commit-
tee, to put a question or two. I will, therefore, -now
ask this question :

Q. Do you wish to be understood as saying that the
cost of the production of the precious metals has no


influence whatever upon their value ? A. I am very
desirous of answering that question, because it is a
great point of controversy between the economists.
What is the influence of the cost of production upon
the value of money ? The cost of production goes for
nothing in the value of money. If the purchasing-
power of money depends upon the volume of money, it
cannot depend upon the cost of production. If, as
some think, the cost of production is manifest in the
purchasing-power of money, we would possess some
dollars which would have the faculty of purchasing
more than could be purchased by some other dollars of
the same metal. But all the money is the same, and is
without regard to the cost of production. Certainly, if
a mine is not producing as many dollars as the work
upon it costs, this mine will stop, and cease to produce
money ; but the money not produced has no influence
on the cost of production of the circulating money. I
do not see how it is possible to find that the cost of
production can dictate the value of money. If such
were the case, the shareholders of the mines would
never make a profit nor sustain a loss.

Q. Does the amount of the precious metals have
any influence upon their value ? A. Certainly. The
value of money depends upon its quantity. It is the
same with gold as with greenbacks. If the stock in
circulation is augmented, the purchasing-power of every
greenback is diminished ; and so with gold and silver.


The purchasing-power is always in relation to the quan-
tity of the money.

Q. Then, since government does not regulate the
quantity, and since value depends upon quantity, how
can government be said to regulate the value of the
precious metals? A. I answer, that the legislator
chooses, or " elects," as Justinian says, the material
which will be money. The material thus elected by
the legislator can be gold, or can be silver, or can be
both; but when the choice or election is made, the
issue is not in the hand of the government. It is in
the hand of Nature, and unlimited. All gold and silver
produced are money ; they are dollars, coming from
underground. The legislator of England has had the
right of making gold only money ; the legislator of
India has had the right of making silver only money ;
the legislator* of France has had the right of making
bi-metallic money ; but when the choice is made, the
government remains with folded hands, and has noth-
ing to do with the quantity of money. There is the
warrantee of the value of the metallic money, that
nobody has the control of the quantity. But when the
quantity is limited, as is the case in fractional currency,
it happens necessarily that there is a diversity of value
between the coined metal and the metal uncoined. A
good and sound money is that money the coinage of
which is unlimited, unrestrained ; so that the value of
bullion and the value of coin are always the same. It


is not the stamp on the coin which creates the mone-
tary value ; that which creates the value is the legal
right of every one of having all his metal stamped and
coined in conformity with the law. I suppose I have
answered the question, though whether satisfactorily to
the committee, or otherwise, I am. unable to say.

Q. Do I understand you correctly as saying that, in
your opinion the value (by which I mean the purchas-
ing-power) which government affixes to the precious
metals is modified by their quantity as produced by
Nature? A. The government gives no value to the
money. The government adopts a monetary unity
for instance a dollar, weighing a certain number of
grains in silver or gold. When we use the term " dol-
lar," we mean to say a certain quantity of metal which
is received by the citizen in the one hand and given
out by the other hand ; but* the government does not
interfere in determining the purchasing-power or the
value of the dollar.

Q. Do you make a difference between "value"
and "purchasing-power," as you use the term? A. I
do not make any difference. The purchasing-power
signifies the value of money.

Q. Would the purchasing-power of gold be affected,
for instance, if silver was not used as money at \\\\t
A. Certainly. The purchasing-power of gold would
increase in a great scale. The valii3 of gold has not
increased after the demonetization of silver in Ger-


many, because the old silver is still circulating in all
Europe. It has not been retired by circulation. The
old thalers are still circulating in Germany ; the old
florins are still circulating in Holland; the old five-
franc pieces are still circulating in France, Belgium,
and Switzerland.

Q. Do you not think that gold has already increased
in purchasing-power ? A. I do not believe it has, for
the reason I have just stated. The price of silver has
fallen in London ; the price of gold has risen in Cal-
cutta; but the prices of the commodities remain the
same in India and in Europe.

Q. Has silver lost in purchasing-power ? A. In
India silver has not lost its purchasing-power. The
prices of all commodities in India have remained the
same, except that the price of gold, which is a merchan-
dise in India, has risen there. I know that in regard
to that matter I am not in accord with the opinions of
the Council of India ; but I maintain that in India the
prices have not increased. The purchasing -power of
silver, which is the only money in India, is still the
same ; and the purchasing-power of gold in England is
still the same as before.

In last September (as reported in the London Times
of October 25th) the Council of India assumed that the
crisis in the Anglo-Indian exchange was attributable
not only to the stoppage of silver coinage in Europe,
but also to a rise in the purchasing-power of gold in


England corresponding to a fall of the English prices,
which are expressed in gold. The Council of India
was mistaken. Neither did the English prices fall last
summer, when silver was quoted in London 46^., nor
did they rise afterward when (this winter) silver was
quoted 5Sd.

The exchange between London and Bombay, be-
tween English sovereigns and Indian rupees, is now
strongly fluctuating every day ; but I repeat, the prices
of Europe have not been affected, the prices of India
have not been affected.

The prices would only be affected and decrease in
Europe if the demonetization of silver could be com-
pleted ; that is to say, if all the thalers, all the gulden,
and all the francs in silver were melted down; and,
then, if all this silver was sent to India and coined in
rupees, the prices would also be affected and increase in

Q. Inasmuch as in India gold purchases more of the
commodities of trade than does silver, would you not
say, since silver has not lost its purchasing-power, that
gold had at least gained in purchasing-power? A.
Gold is not money in India it is merchandise ; just as
silver is not money in England. Gold is dearer in In-
dia than before ; silver is cheaper in England than be-
fore. There is no other phenomenon to remark.

Q. Your remark that gold has not increased in pur-
chasing-power is intended to apply more especially to


countries that use the double standard, is it not ? A.
My remark is intended to apply to all countries where
gold is money, as well to England as to France.

Q. Have not the leading commodities used in Eng-
land fallen in price within the last three years ; and, if
so, is not the same fact true of Germany ? A. I main-
tain that the prices are the same as before, and always
for the same reason, that the demonetization of silver
has not really taken place. "When the demonetization
would be realized, if possible, the prices will fall very
much in Europe rin England, in Germany, in France.

Q. Then I understand you to say that, in your
opinion, the revolution which the demonetization of
silver would of necessity produce has not yet actually
commenced in Europe ? A. Yes.


Q. In case the United States should resolve to
adopt the bi-metallic standard at any proportion, say
15 to 1, and other countries should maintain their
present position with reference to the issue of gold
and silver respectively, what, in your opinion, would
be the effect upon the business of this country?
A. My desire is that a general agreement shall be
adopted by the different nations. In my opinion,
no country can coin silver alone; any country that
coins only silver will remain alone, and will not have
the money for paying abroad. If the United States
coins silver and Europe coins gold, what can you do


with your silver? You cannot pay Europe. In that
case it is far better to maintain your greenbacks and
save to the Government the expense of retiring them.
The situation of the miners is a very interesting one
certainly, and if silver is adopted as international
money, the law can be made favorable to the interest
of the miners; but if silver is only money in this
country, the Government will make a great mistake in
buying that silver, or in contracting the paper-money
[which costs the same], in view of making place for
dollars to be coined with the silver bullion brought to
the mint by individuals. It is better to maintain the
paper-money (greenbacks) than to issue a national cur-
rency of silver, if the other nations do not use that
metal as money.

Q. What, in your opinion, would be the effect of an
agreement to use both metals in the United States, in
Europe, and in India ? A. The effect would be that
every variation, every perturbation in the relative
value of gold and silver would be forever impossible.
The quantity produced of the one or the other of the
metals has nothing to do with the relative value of the
two metals. The only cause which produces variation
in the relative value of gold and silver is that which is
shown in the laws of the different countries. I do not
know whether the committee has sufficient time to
allow me to make the reference, but I may say I can
give historical proof, that any change in the relative


production of gold and silver has nothing to do with
the relative value of the two metals.

Mr. WILLAKD. I desire to ask whether the question
put by the Senator from Massachusetts [Mr. Boutwell]
was intended to include the consideration of the effect
which would be produced by the remonetization of
silver in the United States alone ?

Mr. BOUTWELL. That was the question. I will now
ask the witness this question : If silver and gold should
be used throughout the United States, the Latin Union,
Holland, and India, upon the same basis of relative
values, what would be the effect ? A. I maintain that
the effect would be to constitute a strong mass of
money, composed of gold and silver, but without pos-
sibility of variation in value of the one against the

In connection with this subject of the relative value

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Online LibraryHenri CernuschiNomisma; or, Legal tender. → online text (page 1 of 10)