Henri Cernuschi.

Nomisma; or, Legal tender. online

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in a law establishing the same relation between gold and
silver as has been established by the Latin Union, would
not the United States find it much more difficult to get
a sufficiency of the money-metals, gold and silver, with
which to resume specie payments, than she would to
start out now without reference to other nations ? A.
If the United States were a gold-paying country and
desirous to change its money into bi-metalism, the op-
eration would be pretty easy ; but you are not in that
situation. The United States has three difficulties or
three problems which are to be solved simultaneously.
You have the bondholders question, you have the re-
sumption question, and you have the silver question ;
and it is impossible to give a good solution of one of
the three without giving a satisfactory solution of the
two others. As to the question of the bondholders
iir>t : I Fere I am entirely of the opinion that the



UNITED STATES MONETARY COMMISSION. 39

United States have the right of paying the bond-
holders in silver. I have with me here a bond of
the United States, one of the last issue, a four-and-
a-half per cent. bond. Upon that bond it is ex-
pressed that the same will be paid at home, in coin
of the United States, in the bi-metallic standard ex-
isting in July, 1870. The bi-metallic standard of 1870
is that of 1834, 1 to 16. But the legislator has the
right of changing the standard. This is a superior
right, an inalienable right, and every nation has used
this right as well in modern as in olden times. Eng-
land, which is now mono-metallic, has been bi-metallic.
Germany decided, in 1871, to change the silver stand-
ard into the gold standard. Holland, in 1849, changed
the gold standard into a silver standard. France, which
had a bi-metallic currency at the rate of 1 to 15 before
1785, changed that ratio in that year, adopting 1 to 15J.
The United States did the same in 1834, when she
changed the ratio of 1792, " 1 to 15," into the ratio " 1
to 16."

So, then, you have the right of paying the bondhold-
ers in silver as well as in gold, and the supreme right
of changing the ratio between the weight of gold and
silver dollars. But if you do so, and if silver is not re-
stored in Europe, how can you sell bonds in Europe ?
Who in Europe will buy silver bonds if silver is refused
at the European mints ? And without selling bonds how
can you procure the $300,000,000 of metal which are a



40 EVIDENCE BEFORE THE

necessary minimum without which the specie resumption
cannot be imposed upon the national banks ? On the
other hand, if gold mono-metalism is maintained in the
United States, where will you tind all the gold which
is necessary for resuming specie payments ? There are
only three stocks of gold in Europe : two old stocks,
Paris and London, and a new stock, Berlin. The for-
mation of this new stock renders still more difficult for
you the resumption exclusively in gold. The United
States can only resume after having here in their hands
a great stock of gold and a great stock of silver, the
two being legal tender.

By Mr. BOGY :

Q. You are aware that we have in this country
$700,000,000 of paper-money to redeem? .A When
you have redeemed the greenbacks that the Govern-
ment is pledged to do the $360,000,000 of bank-notes
are a debt of the banks.

Q. What becomes of that paper ? A. That paper
takes a place equivalent to that of the English bank-
notes. Instead of having a central bank as they have
in England, which issues promissory bank-notes in
greater quantity than the bullion she possesses in her
vaults, you will have your thousands of national banks
with bank-notes redeemable in specie at si^lit.

Q. Where will they get the money with which to
redeem them ? A. If you have obtained $300,000,000
of gold from Europe, and if you recoin silver dollars,



UNITED STATES MONETARY COMMISSION. 41

the greenbacks become certificates of deposit, and the
banks can reimburse their notes with greenbacks or in
metal.

Q. Supposing we are alone that is, supposing Eng-
land and France refused to be in accord with us, and
we introduce bi-metalism into this country, and Ger-
many attempts to force her silver upon us at a low
price would our country be injured very materially ?
I understand that France cannot coin because she is too
near a neighbor to Germany. Therefore, letting France
and the Latin Union remain as they are now, and Ger-
many and England remain as they are now, with a sin-
gle standard, we start here bi-metalism and coin, I ask,
Where would the injury come to us as a nation ? A.
The injury would be that at the first moment all your
gold would disappear.

Q.. But no gold would go abroad unless it went to
pay a debt abroad. A. I beg pardon. Germany will
send her thalers to your market and buy drafts on Lon-
don ; that is to say, gold payable by Americans.

By the CHAIRMAN :

Q. That would be to pay a debt. But if we lost a
dollar in gold we would receive an equivalent in money ;
the country would not be impoverished ; we would only
lose a dollar in gold and the foreign country would lose
a dollar in silver. A. At a certain moment, when
there would be a balance in favor of England, how
could you pay England if you have no gold? You



42 EVIDENCE BEFORE THE

could not pay England except by sustaining heavy losses
in selling your silver dollars as merchandise on the
London market. A common money is necessary for
paying the balances between two countries.

Mr. BOGY. I agree with you that our coupons are
only payable at home, but they may be payable in let-
ters of exchange, so far as foreign bondholders are con-
cerned. Suppose that you, a bondholder, are in Paris,
and you want $10,000, you can get it as well there as
at home. That would be a home-purchase. We do
not send silver and gold in kegs ; we pay it in our op-
erations.

The WITNESS. The bank operations are easy when
the money is the same between the two countries ; but
if you have only silver for money and Europe has only
gold, you remain in the situation Of India.

By the CHAIRMAN :

Q. What is the effect upon the country of a balance
of trade being in its favor or against it ? If a man who
buys, pays for what he buys in that medium which he
contracts to pay, what difference is it to him whether
he pays gold, or silver, or tin, or anything else ? Is not
that a matter entirely with the importing merchants of
a country? A. This is a supposition which involves
the abandonment of the invention of money between na-
tion and nation. It supposes also the suppression of
money between individuals and a return to barter. If
barter is the better thing, let us suppress the word



UNITED STATES MONETARY COMMISSION. 43

" price," the word " buyer," the word " seller," the
word " payment," which words were invented with the
invention of money. I hold that bi-metallic money is
the best, because it is the most international. If we
believe that it is possible to make payments between
one country and another without a common money,
then in that case it is useless to be bi-metallic.

Q. Is not the trade between all countries, except
those of the Latin Union, by barter? A. Certainly, the
nations do not trade for exchanging money between
them they exchange merchandise ; but the exchange of
merchandise by the medium of money is, without com-
parison, preferable to the exchange without that me-
dium, or to barter. Money has been invented precisely
because barter was an imperfect and costly mode of
exchange, as is so well explained in the paragraph which
I read to you from the Pandects of Justinian.

Q. Is not the fact that there is no common money
between the nations due to the fact that many of them
use neither gold nor silver, but paper-money ? A. Cer-
tainly. The American greenback, for instance, is not a
common money with Europe.

Q. Neither is the ruble of Russia, nor the paper-
money of Italy and other countries. A. No, sir. The
paper-money-paying country has no common money.
Wherever a country has a paper -money, the best
men of that country are desirous of resuming specie



44 EVIDENCE BEFORE THE

payment, because paper-money is an inferior money,
and is without internationality.

Q. Admitting as correct the theory that the value
of the money of a country is regulated by its volume,
and that that volume should at all times be kept as
nearly equal in amount as possible, on account of the
internal transactions being vastly greater than could be
any external transactions, then (while, perhaps, you
have an advantage in having a money which you can
send abroad in large amounts to settle foreign balances)
do you not create in the supply at home an incon-
venience which more than counterbalances that advan-
tage, by reason of this continual importation and ex-
portation of money ? A. There are conditions at times
when a great quantity of money is going out of a
country; that is true. The best machine is exposed
to some inconveniences, but that is not a good reason
for repudiating the machine. The pocket-watch and
the locomotive are liable to derangement from trivial
causes, but mankind will not therefore relinquish the
use of the watch and the locomotive. When a large
quantity of metallic money is exported from a country,
the bankers there are working to reestablish the equi-
librium. They export bonds of the funded debts or
securities issued by the railway companies and others.
Between England and France the equilibrium is always
restored in this manner. My proposition is still the
same : If you are without a common money with



UNITED STATES MONETARY COMMISSION. 45

Europe, it is useless for the United States to attempt
to resume specie payments, and it is a useless expense
for your Government to redeem the greenbacks by
opening the mint to the coinage of silver dollars.

By Mr. BOGY :

Q. But, Mr. Cernuschi, you stated and stated very
correctly, I think that we cannot resume specie pay-
ments in this country unless we have three hundred
millions of gold ; that, as the gold was principally in
three places, London, Paris, and Berlin, we could not
obtain that quantity ; therefore we .could not resume
upon the same standard alone, and it became a necessity
to introduce silver coin in all of which we agree with
you. But you also say that this cannot be done unless
bi-metalism becomes universal, and includes Germany
also? A. I made an exception that of the Latin
Union, with Holland, and, possibly, India.

Q. Aside, then, from those exceptions, do you not
see, according to your statement, that that cannot be
done? We are required to resume in January, 1879.
We are now in 1877, and have less than two years in
which to prepare for resumption. A. It is very diffi-
cult, 1 admit.

Q. It could not be done at all, because, were a con-
gress of delegates to meet here or in Europe, it would
be in session some time, the deliberations of those
bodies not being ordinarily conducted very rapidly ; and
it would be fully next year before the matter could be



46 EVIDENCE BEFORE THE

determined by the nations to be affected by the arrange-
ment. If, then, we were to wait until that time, it
would be too late to use silver. That is one objection
to your argument. Another objection is, that, although
the Latin Union may agree with us in introducing bi-
metalisrn, France could not coin, because Jhere stands
Europe with a large quantity of silver. A. I will
answer. The House of Representatives rejected, in
January last, the idea of an international congress, fear-
ing that the international congress was proposed as a
dilatory measure prejudicial to the restoration of silver.
The House of Representatives had voted, in December,
a bill for the restoration of silver at the ratio of 1834,
1 to 16. Now, it is believed that the Senate is hos-
tile to the bill, and so the Forty-fourth Congress will
be closed without advancing the solution of the silver
question. If the House had voted in favor of the in-
ternational congress proposed by the Senate, the diplo-
matic conference could have been convened for this
summer, and some days only would have been sufficient
for reaching a conclusion. In case of the refusal of
Germany to adopt bi-metalism, it would have been
possible for France and the United States to buy
directly and together, at a certain price, all the German
silver, and so put a term at once and forever to all un-
certainty in the value of silver In London.

By the CHAIRMAN :

Q. "Why not adopt bi-metalism in France, and let



UNITED STATES MONETARY COMMISSION. 4-7

Germany do as she pleases? A. Because, in that case,
all the silver would come to France.

Q. In your opinion, would the effect of having all
the silver go to France be an injury to the United
States ? would not France be at liberty to send it right
over to the United States ? A. I do not say that the
absorption of the German silver by France would be
injurious to the United States. But it is not probable
that France would, without some prior agreement with
you, consent to absorb all the German silver and to pay
it in gold at 15, for the sole purpose of making an
operation agreeable to you.

Q. Suppose that France keeps her mints shut, as
they are now, and remains as she is, while the United
States adopts the bi-metallic system, with the relation
the same as that which the Latin Union has now es-
tablished Germany is prohibited from sending her
silver to France, and the United States boldly adopts
the relation of 15 J to 1 I ask, what harm could come
to the United States in such a condition of things ?
A. This silver which would come from Germany here
should have the effect of driving out all the gold.

Q. From where ? A. From here.
' Q. How is it that we have now two currencies
greenbacks and gold and yet the greenbacks do not
drive out all the gold? A. You are not entirely a
paper-money country. Your customs duties are to be
paid in gold, and it is for that reason that all your gold



48 EVIDENCE BEFORE THE

has not been exported. But if you adopt bi-metalism,
you are under the necessity of declaring that the silver
dollar is a valid tender, as is the gold dollar, for all
payments, also for the customs duties ; and then all your
gold will be exported, and the silver thalers will be sent
from Germany to your mint and expel all your gold
dollars.

.Q. But here are three hundred and odd millions
of paper legal tenders in this country legal tenders
the same as gold is a legal tender yet the holders of
that legal tender cannot deprive us of our gold ? A.
The holders of paper legal tender cannot deprive you
of the gold which is employed for the payment of the
customs duties. Paper legal tender cannot be im-
ported to be changed for gold. But, as I have ex-
plained, this exportation of gold is inevitable if you
establish bi-metalism, Europe remaining gold-mono-
metallic.

Q. In the presence of the great demand caused by
the wants of this country for the purposes of resump-
tion, how long, do you suppose, would silver remain at a
discount, as compared with gold ? A. The silver can
remain at a discount forever. But this is not the
worst ; the worst is, that no fixity would ever be possi-
ble between the value of gold and the value of silver.
If you are bi-metallic when Europe is gold-mono-
metallic, you are bi-metallic only by name : verily, you
would be a silver-inono-metallic country, such as India ;



UNITED STATES MONETARY COMMISSION. 49

and the monetary position of the United States against
Europe would be exactly the same as is the present
position of India against England a position which
engenders heavy losses to both countries.

Q. Taking into consideration that the little demand
that we made for forty or fifty millions has put silver
up from 50 or 52 to 58-J- pence, would not the
demand for silver for the purposes of resumption,
in the presence of any supply that we could find
in the Western world, be likely to put up the price
so that it would maintain a parity with gold at fifteen
and a half ? A. The demand can only be made in of-
fering gold, or bonds payable in gold, if Europe refuses
to coin silver. In this manner it is impossible to create
a par of exchange between the two metals. I speak as
a man of theory and a man of practice, and I am a sin-
cere friend of the United States. If I speak unfavor-
ably of the possibility of the success of your scheme, it
is not with the desire that it may be unsuccessful. But
in conscience I am obliged to declare, at this time that
in this country the resumption exclusively in gold is
impossible, and that the resumption with bi-metalism
is extremely dangerous if Europe continue to maintain
gold-mono-metalism .

Q. Suppose that we made no issue of bonds what-
ever, but that the Government simply retired its legal
tenders took away from them their legal-tender func-
tions ? A. For retiring the greenbacks it is necessary
3



50 EVIDENCE BEFORE THE

to borrow or tax the people to a great extent. There
is a debt, without interest, of $300,000,000. You can-
not pay a debt with nothing. For retiring the green-
backs you are obliged to spend $300,000,000.

Mr. BOGY. Of something ?

The WITNESS. Of something.

By the CHAIRMAN :

Q. Considering, then, that in this country the
greenbacks are within five or six per cent, as valuable
as gold, how much contraction, do you think, would be
necessary to bring them up to a parity with gold ? A.
Do you speak of the possibility of arriving at the parity
between gold and greenbacks? That may arrive, I
cannot say at what moment. It is possible. But if you
make your plan of resumption on this basis of the par
between gold and greenbacks, your basis is very feeble
and precarious. With the first commercial storm, the
national banks would be in the greatest embarrassment
to pay in metal the bank-notes presented for reimburse-
ment. Then a " run " on the banks, and their failure.

Q. Would not your apprehensions of the inability
of this country alone to adopt the bi-metallic system,
leaving the Latin Union and France to occupy the po-
sition which they now occupy, be entirely modified, if
not dissipated, in the presence of the fact that but a
small amount of silver is available in Europe outside of
the Latin Union, for purposes of sale to this country ?
A. Germany has the only stock. There is no stock



UNITED STATES MONETARY COMMISSION. 51

of silver anywhere in the European market, because the
silver still goes to India.

Q. Then, if there is such a small supply on hand,
and the United States needs such a large amount of
money-metal, would not silver rise to a parity with gold
when the demand for it was made by the United States?
A. You begin by issuing in Europe bonds to be paid
for in silver. The bill passed by the House declared
that they should be payable in silver. Nobody in Eu-
rope will buy these bonds payable, interest and princi-
pal, in a metal which is not coined in Europe.

Q. Suppose we should issue bonds payable in gold,
and buy the silver at such prices as we could get it for
when it is low, and before a great demand is made for
it in other countries ? A. But if you issue bonds pay-
able in gold dollars, you cannot be bi-metallic. When-
ever you arrive at that conclusion, you make a distinc-
tion between gold dollars and silver dollars. If you
contract obligations in gold dollars, you declare that the
gold dollar is better than the silver dollar, and in that
case silver will never be restored to the same rank with
gold.

Q. If we stand in the presence of great nations
like Germany and China, who cannot have the double
standard, and when we see another great country like
England, whose ancient prejudices or reasons, whatever
they may be, will not allow her to consent in our time
or in the near future to the adoption of bi-metalism,



52 EVIDENCE BEFORE THE

must we forego the advantages which bi-metalisni offers
until these nations can grow up to that position in
which they can adopt it, or until their prejudices can
be overcome ? A. It requires great audacity.

Q. Then I ask you whether, if it requires more au-
dacity than was required on the part of France when,
singly and alone, she boldly took the step, and, without
a union with any other country, succeeded in maintain-
ing the variation intact and to her own great advantage
for sixty-five or seventy years I ask whether at this
time, when we have, the assistance of France, when we
have the Latin Union formed, and have a knowledge
concerning money much in advance of that which
obtained when France formed the relation, we cannot
adopt it with much more assurance of success than had
France at the time of her adoption of it ? A. But
France was not then in the presence of a count ry
demonetizing silver. She had not to restore silver
and to invent bi-metalism. Silver was the principal
money in Europe. France acted with her forces, and
she had not to fight against the forces of the others.

By Mr. BOGY :

Q. I understand that the price of silver bullion in
London is now fifty-eight and a fraction ? A. It is.
This price of London is now made by the price paid
here by the Secretary of the Treasury in buying silver
for coining fractional currency. I admit that, if you
coin a great quantity of fractional currency, silver



UNITED STATES MONETARY COMMISSION. 53

obtain a good price, but it will be at your expense.
When the coinage of your fractional currency will be
completed, the silver bullion will fall to what it was
before, and you will see, too late, that to buy so great a
quantity of silver for coining tokens is a bad operation,
an unjust concession made to the silver-men a con-
cession made, perhaps, in the hope of deferring indefi-
nitely by that means the unrestricted coinage of silver
as legal tender in full. In every case, what we want is
not a rise in the value of silver, but fixity. "We want
a par of exchange between gold and silver, that is to
say, a common money between Europe, America, and
Asia. This par of exchange is impossible without
the intervention of the legislators in establishing in the
principal countries the same legal ratio between the
weight of gold coins and the weight of silver coins.



TUESDAY, February 6, 1877.

Present, Senators Jones, of Nevada, chairman, and
Bogy, and Representatives Willard, Gibson, and Bland.

HENRI CERNUSCHI resumed.

By the CHAIRMAN :

Question. Permit me to repeat the question which
I asked you yesterday : To what cause or causes do you
attribute the recent changes in the relative value of gold
and silver ? Answer. I attribute the crisis of silver to



54 EVIDENCE BEFORE TUB

one and a single cause the German law of 1871. I
know that other causes have been adduced that is to
say, the discovery of new silver-mines of great rich-
ness in the State of Nevada, the decreased demand for
silver for export to India, and the legal limitation of
silver coinage by the Latin Union. Certainly, these
events have aggravated the situation of silver. But if
the German law had not appeared, the Latin Union
would not have limited the coinage of silver, the new
silver of Nevada would not have reduced the value of
silver, just as the more extraordinary production of gold
in California and Australia some twenty-five years ago
did not reduce the value of gold. The par of exchange
between silver rupees and gold sovereigns being guar-
anteed by the permanent action of the French bi-rne-
tailic law, the decreased exportation of silver to India
would have been without effect on the value of silver
as compared with the value of gold.

Q. Is it your opinion that the low price per ounce
in gold which silver reached in 1876 was attributable to
the panic occasioned by exaggerated reports of the pro-
ductiveness of the American mines, and exaggerated
estimates of the amount of silver which Germany had
to dispose of ? A. It is very difficult to estimate as to
how much influence the panic has had on the price
of silver in London. For my part, I am led to think
that the depreciation was simply the result of the nat-
ural prices stipulated in the public market ; and I believe



UNITED STATES MONETARY COMMISSION. 55

that, if subsequent circumstances had not determined a
rise, the price of silver would have remained at the
level which has been called " the panic level." There
is one fact or two which I would here mention : first,
the influence of the Chinese law, which makes silver
the sole legal tender. Europe, having bought this year
a great quantity of silk in China (our crop having
failed), has been obliged to send to China a greater


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Online LibraryHenri CernuschiNomisma; or, Legal tender. → online text (page 3 of 10)