Henri Cernuschi.

Nomisma; or, Legal tender. online

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lations among different nations, and in time remove that
cause for fluctuation which proceeds from the successive
changes of their respective mints " (page 19).

1831. February 22. Report of the Select Committee
on Coins, by Campbell White. We read : " The commit-
tee are firmly of opinion that the rate proposed by the
Secretary of the Treasury, of 1 of gold to 15.625 of sil-
ver, is the utmost limit to which the value of gold can be

1834. March 17. The same committee recommends
that the relative value of gold be fixed at 1 to 15.625 of

1834. June 21. In the House of Representatives, the
committee having for the first time proposed the ratio 1 to


16, Mr. Selden suggests 15.58, increasing the weight of
the gold dollar from 25.8 to 26.4. Mr. J. Quincy Adams
said he should vote in the affirmative, though, he said,
very reluctantly, and in the hope that the ratio 16 would
be amended elsewhere. He considered it as decidedly
too high. Mr. Gorham proposed a gold dollar of 26
grains = 15.57. Mr. Whilde admitted that, by the ex-
isting law (1 to 15), gold was undervalued ; but by the
new bill (1 to 16) it would be overvalued, that, of the
two, he should prefer the old one. But the bill was
passed 145 yeas, 36 nays.

1834. Senate, June 28. Mr. Sprague said he could not
vote for the bill. He believed it would throw the evils
on the other side. We were creating the same dispro-
portion between gold and silver as at present existed,
making a distinction on one side as much too wide as that
which now existed on the other side. All agree that
the true line was between the two extremes. Why gen-
tlemen should transcend the point which everybody
agreed was the true line of value between the two met-
als, he did not know. No one recommended that the
true value was 16 to 1, but all believed that it was be-
tween 15 and 16. But the bill was passed 35 yeas, 6

It is important here to consider that, during a period
of sixteen years, the ratio 15 has always been recom-
mended by the most experienced and competent men
on the subject, and that the ratio 16 has never had an


advocate. Notwithstanding this, at the last moment,
in 1834, the ratio 16 was adopted by the American
Congress, being in the end considered to be agreeable
to the Government at that time. The proprietors of
the mines of Georgia and Carolina were satisfied with
coining $106 with *the quantity of gold which was neces-
sary before for coining $100. The effect of that law was
the expulsion of silver from the United States an expul-
sion so complete that even all the small change left the
country. In 1853 you were obliged to issue a silver
fractional currency in a debased condition. Another
error was committed in 1873, when, without having a
single dollar of silver, you enacted the demonetization
of that metal. There was no silver; then why have
demonetized it ? It is important at this juncture that
no error should be committed ; and for avoiding new
errors, it is wise to remember the errors committed in
1792, in 1834, and in 1873.


Q. Did I understand you correctly yesterday as
.stating that the recent remarkable divergence in the
relative value of the precious metals was caused chiefly,
if not solely, by the monetary legislation of Germany
in 1871 and 1873? A. I have so stated that it was
caused solely by that.

Q. Was the attempt that was made by Germany to
demonetize silver beneficial, or injurious, to that coun-
try ? A. It was injurious. She has lost all the differ-


ence between the old value of silver and the value at
which she has sold. She suffers also the disadvantage
of having now in circulation the new piece of five
marks, which is a debased coin.

Q. Was it beneficial, or injurious, to any other
country or countries? A. It was injurious to all the
countries, and chiefly to England in her intercourse
with India.

Q. What other countries besides England and Ger-
many suffered great inconvenience by such legislation ?
A. The countries of South America, Austria, Russia,
and India.

Q. Did the countries using paper-money, such as
Russia and Austria, suffer any evil effects so far as re-
lates to the internal commerce of those two countries ?
A. Yes, sir.

[NOTE. A continuation of the last answer is given at
the opening of the session of the following day.]

THURSDAY, February 8, 1877.

Present: Senators Jones, of Nevada, chairman,
Boutwell, and Bogy ; and Representatives Willard and



[NOTE. The last question put to the witness on the


preceding day, and then partially answered, was here re-
peated, and was followed by a more specific answer, as
follows :]

A. Yes, sir. My answer is based not merely upon
any argument of my theory, but upon matters of fact.
A great crisis has taken place, principally in Vienna,
this being a consequence of the great fall of silver on
the London market. The public debt of Austria is
stipulated in silver, and the bondholders were nearly
ruined by the event. It would take too long for me
here to give a description of the crisis, but I declare
that the paper- pay ing country suffered by the derange-
ment of the relative value between gold and silver
much more than did the metallic-paying country.
There is no way in which to escape the precepts of sci-
ence. Paper-money is a bad money, and no argument
can be invented for inducing a country to prefer paper-
money to metallic money. My evidence should be
construed as being rather in defense of bi-metalism
against mono-metalism than as combating the theory
of paper-money.

Q. Is it your opinion that, if the legislation of Ger-
many demonetizing silver were not counteracted by the
legislation of other countries of equal standing, the de-
preciation of silver would be permanent, and would
perhaps be increased? A. Certainly. I hope that a
salutary reaction will induce many countries to adopt a
bi-metallic law, and so counteract the action of mono-


metalism ; but if this step is not taken, the price of
silver will fall to a low level, and in any case never re-
cover the old fixity that it possessed relatively to gold
under the reign of bi-metalism.

Q. Did I not understand you correctly as saying, in
answer to a question previously asked you, that it made
no difference of what material money was composed,
whether it was costly or otherwise; that the law of
legal tender gives value to money, and that this value
of money was increased or diminished in proportion as
its volume was greater or less ? A. Precisely.

Q. Why, then, would it not follow that the use for
money of a material such as gold or silver, which can
only be obtained by great expenditure of labor and
capital, is unscientific, wasteful, and uncommercial, and
that in other respects money made of paper would be
as good, and, on the score of economy, much better ?
A. Paper-money has no other guarantee than the good-
will of the Government, which has the sole power of in-
creasing and decreasing the volume circulating. Gold
and silver, on the contrary, are issued by Nature herself,
and it is not within the option of kings or of congresses
to change the natural production. Paper-money cannot
circulate abroad, simply because of this want of a guar-
antee. Add that gold and silver have all the .physical
qualities for a good money, and you explain why they
are adopted by the legislators of many countries, and
so become an international money.


With reference to paper-money, another great error
prevails. Many people believe that its value depends
upon the promise of the Government to repay them in
metal one day or other. This promise does not add to
the purchasing-power of paper-money. A promise to
execute, without date for executing, is not a promise.
The only reason why paper-money has a value is that it
is legal tender ; that nobody can refuse it ; that the
Government accepts it for the payment of taxes. It is
for this reason that it circulates in the same way that
gold and silver circulate. Paper-money is not a credit-
paper, but an enforced standard. Gold and silver
money is also an enforced standard, but possesses quali-
ties which paper-money does not possess, as I have be-
fore stated.

Q. As I understand you, the objections to the per-
manent use of paper-money in any given country are
found in its lack of universal appreciation, in the un-
certainty of legislation on the subject, and in the ten-
dency to unduly increase or contract the issues and
thereby cause disastrous fluctuations in values. A. I
can only repeat wHat I have said, preferring, if you
consent, to use my own terms rather than those made
use of by yourself. Let me add, that the two political
parties have inscribed on their programmes, " Resump-
tion of specie payments" a proof that the inconveniences
of paper-money are acknowledged in every quarter.


Therefore it is perhaps unnecessary to make any argu-
ment against its use.

Q. Are not the dangers and inconveniences which
you have enumerated as connected with the use of
paper-money confined to and controlled by the country
interested ? and in the use of gold or silver as money, is
not a country subject to the same dangers, not only
from its own hasty legislation but also from the ill-
considered or interested legislation of any and all other
countries using such material as money, and in addition
to the chances and vicissitudes of mining? And has
not the legislation of one country (Germany) relative to
the precious metals been sufficient, according to the
opinion you have expressed, to produce a crisis all over
the world, and especially in countries on the specie
basis, and debarred silver from being offered in pay-
ment in all the principal countries, thus placing it in
that regard on a level with paper-money ? A. We saw,
in 1871, a monetary revolution without precedent, when
Germany in one day declared that the whole of her
money was without value, and that it was necessary to
have gold in place of it. This revolution is a lesson
for her and for other nations. Bi-metalism will reme-
dy all the evils. But I cannot admit that, because Ger-
many has committed so great a fault, it should be possi-
U< to compare the metallic system to the paper system.
When I say that bi-metalism will succeed, and is neces-
sary, I am supported by a declaration by one of your


best Secretaries of the Treasury, Mr. Ingham, in his
report to the Senate (March 4, 1830, No. 135, p. 10),
respecting the relative value of gold and silver^ I read,
and call your attention :

"A conventional agreement among the principal com-
mercial nations of the world which desire to use both gold
and silver as standards of value, fixing the same relative
values, might avert such consequences (the change of the
ratio by other governments).

" But the regulation of the coins of a country is regarded
as a high attribute of sovereignty; and until higher objects
of ambition shall overcome the folly of maintaining mere
dignity at the expense of the public good, it is not to be
hoped that such a measure would be favorably considered."

What, in 1830, Mr. Ingham could not hope for, we
must hope for in 1877. I confidently foresee that the
sons will not indulge in the prejudices of the fathers.

Q. Have you noticed that portion of the testimony
by Mr. Ernest Seyd, given before the British parlia-
mentary committee on the depreciation of silver, rela-
tive to the coining of the trade-dollar in this country ;
and, if so, were his conclusions correct ? A. I have
noticed it. The trade-dollar has neither the merits nor
the demerits which people ascribe to it. Mr. Seyd, in
saying that the trade-dollar weighed 420 grains and
that the gold dollar weighed 25.8 grains, stated what

was true that the ratio between these two dollars is 1


to 16 and 63. But this ratio is not a legal ratio. The
trade-dollar was not, is not, legal tender in the United
States. The trade-dollar is simply a parcel of metal
which has received the official stamp, just as in many
States forks and spoons receive a stamp declaring the

The stamp of the trade-dollar declares at the same
time the fineness and the weight. The friends of the
trade-dollar have believed it would increase the ex-
portation of silver on a great scale. It was a mistake.
I have been in China and almost all Asia ; the metal
coin is received there as bullion. In proof of that, I
will also quote a letter of Mr. M. Y. Davis, special em-
ploye of the mint at San Francisco, writing to the
Hon. H. R. Linderman, Director of the Mint. He

" Transactions in fine silver in this market were gov-
erned almost exclusively by the London quotations, or the
purchasing-rates fixed by the United States Mint. I may
also add that, except in some instances, where small ship-
pers paid several points above intrinsic values, trade-dol-
lars ruled proportionately." (See Report of the Director
of the U. S. Mint for 1876, p. 58.)

If trade-dollars and silver bullion rule proportion-
ately, it is certain that the trade-dollar is not preferred
in Asia to the bullion.


I would add that the more you will export of trade-
dollars the less you will export of bullion. For reviv-
ing the value of silver, you must not rely on the ex-
portation of the metal, but on the adoption of bi-
metalism by yourself and by Europe.

Speaking of Mr. Ernest Seyd, I must declare that
this gentleman is entirely familiar with monetary que&
tions, and that if he fell into error about the trade-dol-
lar, the error can be attributable only to incorrect in-
formation having reached him.

Q. Is the value of gold and silver governed by the
law of supply and demand, as is the case with com-
modities generally? A. No, sir. Gold and silver are
not merchandise where they are money, and the one or
the other are money somewhere. We ought to con-
sider the miners not as producers of commodities, but
as producers of legal tender. They never go to the
market ; their produce is not to be sold ; they are no

The mint is open ; they go there ; there the metal
is coined, and the owners of the coins never go to
the market for selling them. They are purchas-
ers of everything, not sellers of a merchandise. The
market cannot refuse the produce of the mines. All
the bullion is money, and really the miners extract
from undergound dollars, francs, pounds sterling, marks,
rupees, and so on. Nobody goes to the market to buy


them with other coins. To the economists who persist
in speaking of supply and demand, I say : All the new
gold and the new silver are permanently demanded by
a permanent and faithful customer, the mint. The
mint is under the legal obligation of coining promptly
all the new gold and the new silver, and of coining
them ; not at the commercial ratio, but at the ratio
established by law. Nomos, nomisma, as said Aristotle.
Hence the situation of the miners is a legal situation.
There is a contract between the miners and the law.
Miners are never in a state of competition among them-
selves. Why ? Because the dollars extracted have all
the same legal value. It is as if the legislator were the
purchaser of all the produce of the mines. If, for in-
stance, you possess a mine which gives an average profit
of $100,000 a year, all the new mines which can be
opened near your mine,whatever may be their production
and however insignificant the cost of their production,
can never diminish your profit. If one supposes that
all the mines are in the same hands, the monopoly
would not increase the value of money.

The dollars would have the same purchasing-power in
the hands of the monopolist as they have in the hands
of a number of miners. Metallic money can never be
said to be either cheap or dear for the public. When
you shall have the silver dollar, Europe coining silver
at the. same ratio as you, the silver dollar will cost to


the public exactly the same quantity of merchandise or
services as the gold dollar costs. The producer of sil-
ver dollars will never give them for less. Silver will
be, so to say, legally converted into gold ; that is all.
The superiority of the bi-metallic money consists in
this, that it is the soundest national and international
money, and that its value, its purchasing-power, is more
stable than the purchasing-power of all other money,
mono-metallic or paper.

Q. It is claimed by some people that we can have
one hundred millions of gold and four or five hundred
millions of paper. A. They are wrong. That is your
position at present. If you are satisfied to remain as
you are, very well. If the silver dollar is not perfectly
equal to the gold dollar, the introduction of silver will
have the effect of giving you three moneys instead of
two, and you will have a silver-room in ISTew York, as
you now have there a gold-room. It is to avoid this re-
sult that I have suggested the loan in pounds sterling.

Q. Then you believe it impossible to obtain the
benefits of bi-metalism, and the stability in money con-
sequent thereon, in any other way than by procuring,
before any attempt is made to that end, a sufficiency
of metal to redeem all the outstanding issues of the
Government ? A. I am obliged to you for the oppor-
tunity to express myself which your question offers. I
answer, Yes. In deciding whether you are bi-metallic
or mono-metallic, it is necessary to get rid of paper


money. Neither Austria nor Italy can speak of bi-
metalism until they pay in* paper. But your position
is better. On the Pacific coast, and at all the custom-
houses, you pay in metal. You already possess about
$150,000,000 in gold. Still, resumption signifies re-
demption in metal of all the greenbacks. For repaying
these greenbacks, it is necessary for the Government to
have in its hands not n the hands of the public, but in
its own hands more than three hundred millions of
dollars in metal. As, at the present moment, silver is
not coined in Europe, and as it is a value without
fixity, the best you can do is to carry the war upon the
territory of mono-metalism in England, and there issue
your sterling consols. This course would have the
effect of persuading England that all is not perfect in
the mono-metallic system, and she would pay more at-
tention to the arguments of the bi-metalist.

With the realization of the sterling loan I have pro-
posed, there will be but one dollar in this country, the
bi-metallic dollar, capable of paying all debts and all
taxes. If you maintain tbe gold dollar for the custom-
house and introduce the silver dollar for other pur-
poses, you yourself create a distinction which is op-
posed to bi-metalism. And if you permit the coinage of
silver only as a substitute for the greenback, your Gov-
ernment is still obliged to issue the same quantity of
bonds for contracting the greenbacks as for procuring
gold from England. Moreover, when that issue of


bonds would be met, the silver dollar would be a bad
money, because it would be a money without inter-
changeability with Europe, where silver is not coined.
It is better to maintain the greenbacks than to introduce
silver in this condition ; at least, there is a great econ-
omy for the Government. Silver would be a sort of
second edition of the greenback, if the silver dollar is
refused at the custom-house.

Q. Do you agree as to the facts and reasons adduced,
and concur in the conclusions arrived at by the British
commission upon the depreciation of silver? A. I
have read with careful attention the report of the Eng-
lish commission. Its chairman is a distinguished states-
man, economist, and banker. Still, my conviction is
that its inquiry is defective in this, that, instead of being
a general inquiry into the monetary situation of the
world, it seems to be an inquiry about the fluctuation
of a merchandise. Depreciation of silver is a phrase
admissible in England, where silver is not money ; but
this term has no signification in India, where silver is
money. Depreciation means diminution of price.
Money can never diminish in price, because money is
itself the material of which price is composed.

Having made these observations, I beg to add that
the English inquiry contains many data which are favor-
able to bi-metalism. It results from the report re-
ferred to that the power of law is absolute in the mat-
ter of money ; and it results also that the variations in


the relative production of gold and silver during all the
present century have been powerless to counteract the
action of the French bi-inetallic law.


Q. To what causes chiefly do you attribute the im-
portance of London as a centre of exchange? A. I
understand the question, and I commence my answer
by saying that it is not to gold mono-metalism that
England owes its commercial preeminence. Post hoc is
not propter hoe. England has always been preeminent
in maritime interests ; her genius takes that direction.
She possesses immense and widely-separated colonies,
with which, so to speak, she is obliged to communicate
constantly. Had she bi-metallic currency, England
would continue the centre of her great commerce, and
avoid in future many monetary crises. Here let me
quote the opinion first of Alexander Baring, M. P., who
was a bi-metallic advocate, and who suggested to his
country the adoption of the French law, as it can be
seen in his evidence before the Committee on Coin, to be
found in the London Times of February 25, 1830.

Mr. Baring recommended the issue of silver crowns
(five shillings), containing 15 times the weight of fine
metal contained in five shillings in gold. Mr. Baring
was not a man of science as was Isaac Newton ; he did
not see, what Isaac Newton had seen, that the market
relative value of gojd and silver is but as the shadow of
tin- mint refill at ions of the different countries. Alto-


gether, Mr. Baring was a great merchant, a man of
large experience; and he could say in his evidence:
" In practice the variation between gold and silver is in
France seldom above a tenth per cent. It sometimes
rose up to a quarter per cent. It has been something
higher on particular occasions. When the Bank of
England was running all over the Continent for gold,
this was the case." Mr. Baring alludes here to the
effect of the gold mono-metallic law then enacted in
England, by the action of which there was a demand for
gold not for commercial purposes, but for coining Eng-
lish lawful money, the sovereigns.

And now let me quote the authority of Robert
Peel. Robert Peel was so fully convinced that Eng-
land is in want of a stable exchange between the silver
rupee and the gold sovereign, that in the charter of
the Bank of England, in 1844, he introduced a clause
authorizing the Bank of England to have silver bullion,
instead of gold bullion, to the extent of a fifth of the
bullion with which the bank-notes are redeemable in
gold. Robert Peel said, on the 20th of May, 1844, in
the House of Commons, that it was necessary to have
ready a stock of silver in the Bank of England, in order
not to depend upon France. At present this depend-
ence does not exist. France coins no silver, but Eng-
land loses all the advantages she derived from the fixity
of exchange with India a fixity due entirely to the
action of French bi-metalism.


The value of silver respectively to gold having lost
the fixity imparted by the French bi-metallic law, no
longer can the Bank of England keep silver in her
walls as guarantee of bank-notes issued payable in gold.
If Robert Peel was living, he would undoubtedly advo-
cate the reopening of the English mint for the unre-
stricted coinage of silver as legal tender in full.

I conclude that it is impossible to attribute the great
position of England to her gold money. Before the
introduction of mono-metalism she was still the great-
est maritime nation. Holland was also a great nation on
the seas, and she paid in silver.

Q. If the nations of the world, with the exception
of England, should adopt a bi-metallic monetary stand-

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Online LibraryHenri CernuschiNomisma; or, Legal tender. → online text (page 6 of 10)