Henri Cernuschi.

Nomisma; or, Legal tender. online

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difficulties to overcome in order to emancipate them-
selves from paper-money, that they cannot dream of
taking at the same time, as France took, the bi-metallic
direction of the world.

As regards the states of South America, it is evi- g
dent that they will be unable either to pay their debts
in Europe or to buy European merchandise if the silver
yielded by their mines i not a legal tender in the Old
World. Pernicious in Europe, pernicious in Asia, per-
nicious in America, the mono-metallic scheme has pro-
duced and can produce nothing but disaster.



126 SILVER VINDICATED.

IY. INACTION.

Having only gold money at home, Englishmen have
a certain disposition to speak of silver as they speak of
cotton or iron, sugar or coal. Silver is being depre-
ciated what matters it? To-day a fall, to-morrow a
rise. Natural laws must be left to act ; they will bring
back fine weather, and we must trust to the energy of
commercial interests ; it will restore the equilibrium.

Yes, if silver had only been simple merchandise this
reasoning would be plausible ; but silver was more than
simple merchandise, it was a legal tender. All the
new silver was entitled by law to be worth, and was
worth, as much as the silver formerly coined ; it will
be no use waiting years and years : silver will never re-
cover the value which it possessed when it was a legal
tender in Europe. Bound up with gold by the French
15 J, the value of silver was as stable as that of gold ; it
will henceforth be as unstable as that of copper.

Inaction will only aggravate the evil, and the only
jeffective action in this matter is that of legislation.
Bad laws have been passed; let there be good ones.
Lex abstulit) lex ddbit.

Y. THE EXPEDIENTS.

" Int/roduce into India gold mono-metalism^ Im-
possible for the German empire, the expulsion of sil-



SILVER VINDICATED. 127

vcr and the substitution of gold are still more impos-
sible in the Indian empire.

"Increase the Indian taxes" or increase the weight
of the rupee, which comes to the same thing. If silver
had only fallen in value to a certain point and stopped
there, one might to some extent understand this pro-
posal ; but the value of silver has become, and will al-
ways remain, variable. Will the amount of taxes or the
weight of the rupee have to be modified according to
the changes in the value of silver ? Can the Hindoos
be told, " You shall pay us as annual taxation as many
rupees as it will be necessary to sell in order to buy
every year 15,000,000 gold sovereigns ? " No ; the plan
is as impolitic as it is impracticable.

" Coin no mon*e rupees" Certainly, if England is
quite resolved to endure anything rather than act, those
intrusted with the Indian administration may think
themselves entitled to follow the example of Holland
and France, which have ceased to fabricate silver money.
But what consequences would follow? What will the
ingot be worth when, already rejected by Europe ; it
will be rejected by the mints of Calcutta and Bombay ?
What will be the worth of that enormous mass of sil-
ver ornaments worn by the Hindoos, when the conver-
sion of them into rupees will be prohibited? The
depression of silver will no longer have hardly any
limits, and all the rupees formerly coined will be, as it
were, converted into bronze, so greatly will be reduced



128 SILVER VINDICATED.

their value on being melted down. Is this the dream
of the mono-metalists to decree the demonetization
of silver, and then to see it circulate forever on the
footing of a metallic assignat ?

The monetary mechanism of the world has been
broken down ; we are in full cataclysm. Neither India
nor any state can defend itself singly ; either all the
states will be rescued by means of a general under-
standing, or none will be so.

VI. THE ONLY K'EMEDY : UNIVERSAL BI-METALISM.

If all the monetary laws passed in Europe since 1871
were repealed, it is beyond doubt that silver would
recover its value, that the Indian exchange would re-
turn to its old level, that the 15,000,000 of Indian
bills would be sold without loss. But it is not possible
to reconstruct the past just as it was. Germany cannot
resell gold to become again silver mono-metallic, and
France cannot alone at her own risk and peril recom-
mence coining silver. Bi-metalism can only be rehabil-
itated by the cooperation of all the states, India in-
cluded. The mischievous mono-metalism cannot be
abandoned without establishing a bi-metalism still more
beneficial than the French bi-metalism universal bi-
metalism.

In coming to France to get gold coined in order to
take back silver, or silver to take back gold, the nations



SILVER VINDICATED. 129

could not expect the operation to be entirely gratis. It
was necessary to pay a small premium on the metal
taken away, and to this expense was added the cost of
transport and coinage. With universal bi-metalism all
these expenses would be saved.

No state being any longer mono-metallic, gold and
silver will everywhere circulate simultaneously. France
will not be the only bi-metallic dock in the world.
Who will ever think any more of offering gold to get
silver, or vice versa, when the two metals will be every-
where a legal tender at the uniform rate of 15 ?

VII. OBJECTIONS.

1. " The English sovereign will lose its value, its
purchasing-power will be impaired, if silver is allowed
to circulate as an unlimited legal tender."

This is a mistake. If silver could really be driven
out of circulation, the value of gold would increase.
If silver had never been in circulation, the value of
gold would have been, and would be, greater than it is.
But silver has always circulated, it has always competed
with the value of gold, it still circulates, and the re-
duction which this rivalry might impose on the value
of gold, gold has already fully undergone ; it has noth-
ing more t* fear. Although silver has not circulated in
England, the value of English gold has never escaped
the effects of the competition of silver. The proof of



130 SILVER VINDICATED.

this is that English gold has never been worth more
than French gold, circulating side by side with silver.

With French bi-metalism the gold sovereign was
worth in silver 15 times its weight, just the same as the
franc gold. The case will be the same under universal
bi-metalism. The circulation of silver in England will,
therefore, strike no blow at the value of the sovereign.
. 2. " Breach of faith."

The English creditors have stipulated for payment
in gold ; if they are paid in silver they are aggrieved.
This is a pitiful scruple. They would be aggrieved if a
given sum in silver was worth less than the same sum in
gold, but they are not if the two sums are exactly equiva-
lent ; and universal bi-metalism makes them equivalent.

England has been in turn bi-metallic, silver mono-
metallic, again bi-metallic, and lastly gold mono-metallic,
without drawing on herself the reproach of having at
every change committed a breach of faith. Holland,
Belgium, and the United States, have changed their
monetary metal without incurring any blame. The
French rentier has never troubled himself whether he
would be paid in gold or silver; he has always been in-
different to the color of the metal. The English fund-
holder will be so too.. English interests, Indian inter-
ests, the interests of the whole world, demand this re-
form, which consists in declaring the coinage of silver
free, even in England ; and this reform will injure no-



SILVER VINDICATED. 131

body. To reject it there must be good reasons, not
mere pretexts or pitiful scruples.

3. "Gold is the money of the rich nations; Eng-
land should have gold money."

This is a prejudice. France, the United States, Hol-
land, Belgium, have alternately had now gold money,
now silver money, without being alternately more rich
or less rich. India had a large amount of gold money
at a time when she was poorer than at present with her
silver money. Great Britain has been prosperous with
gold mono-metalism, but the bi-metallic system would
have insured a greater independence to her monetary
market, which has always need of exchanging one metal
for the other, and bi-metalism would very probably have
prevented or mitigated more than one monetary crisis.
People defend themselves better with two metals than
with one.

4. u Silver is too heavy."

Gold also would be too heavy if one had to carry it
in the pocket. But checks, bank-notes, clearings, do
away with the transport of the metal, and for small
payments a variety of money, " gold, silver, bank-notes,"
is preferable and preferred.

5. " The paying-power of gold is very stable, there-
fore gold money is the best."

The stability of the paying-power is in proportion
to the stability of production. The production of gold
is more irregular than the production of silver; the pay-



132 SILVER VINDICATED.

ing-power of gold therefore would per se be less stable
than that of silver. It is the presence of silver in
general circulation, and the gravitation of the French
15^, which preserved the paying-power of English
sovereigns at the time of the influx of Californian and
Australian gold. Irregular the production of gold, ir-
regular the production of silver ; but the two irregu-
larities neutralize each other, and the bi-metallic produc-
tion is very regular. For twenty-four years the total
production of the two metals, valued at 15, represents
an almost perfectly uniform annual sum of 33,000,000.
Alone the bi-metallic money is of regular produc-
tion, and alone the bi-metallic money has stability
of value.

6. " Every reform is costly."

Not this : the establishment of the universal 15J-
involves no recoinage. All the coin in actual circula-
tion is retained. This is the very reason why no other
ratio must be substituted for the 15. For England
and India the innovation is confined to allowing the
free coinage of crowns or double florins, and of gold-
pieces of 10 or 20 rupees, while continuing the coinage
of gold sovereigns and silver rupees.

VIII. THE IRREVOCABILITY OF THE 15J.

Would it not be advisable to agivc that the ratio 15

mi-lit !< modified after a certain period ? No ; either



SILVER VINDICATED. 133

the ratio is irrevocable, or bi-metalism cannot stand. If
the French law of 1803 had provided that the weight
of the franc gold might subsequently be altered, and
that the weight of the franc silver alone would remain
unalterable, the franc gold would have been discredited ;
people would have taken the precaution of contracting
in franc silver. Compromised in France, French bi-
metalism would have had no influence abroad, and the
relative value of the two metals would nowhere have
had any fixity.

But it is urged : " To guarantee the irrevocability of
the 15, is to guarantee that two merchandises, notwith-
standing the law of supply and demand, will always re-
tain the same relative value to each other. It is to
guarantee an impossibility." This is still confounding
money with merchandise. To speak of merchandise, is
to speak of competition, supply and demand, purchase and
sale, price. To speak of money, is nothing of the kind.

"Whether he produces little or much, at a profit or
at a loss, no miner can ever sell his metal-money either
dearer or cheaper than other miners, for the simple rea-
son that the metal-money is not sold or bought ; it is
itself its price. Neither offered nor demanded, as soon
as it issues from the mines the metal enters of full right
into circulation, and its paying-power will be identical
with that of the metal already circulating, with which
it proceeds to mix itself. Thus there is no competition,
no buying and selling, no price.



134 SILVER VINDICATED.

Such are the immunities inherent in the monetary
metal. Gold and silver alike necessarily enjoy them
when the monetary law is bi-metallic. Therefore, no
competition is possible between the producer of gold and
the producer of silver, no purchase and sale, no discount,
no price between one metal and the other. Without
their being offered, without their being demanded, the
circulation absorbs them both at the legal par, and can-
not refuse them. When the monetary law is bi-metallic,
neither gold nor silver, coined or uncoined, is merchan-
"dise. That is the secret.

Their color is different, their weight is different,
their production is different no matter ; the paying-
power of the two currencies being legally identical, no
depreciation can befall one metal relatively to the oth-
er ; and, consequently, the relation between the weight
of the gold coin and that of the silver coin never needs
alteration.

Knowing that he could prescribe for perpetuity, the
legislator of 1803 took good care not to say that the
15J should be merely provisional and subject to modi-
fication ; the 15 J was never modified, and during three-
quarters of a century it governed the relative value of
gold and silver in the entire world. It will appertain
to the International Congress to reestablish it, to de-
clare it universal, and thus to give it absolute stability.
This will be a great benefit for all nations.



APPENDIX



THREE LETTERS ON THE SILVER QUESTION.



BY



SAMUEL SMITH,

PRESIDENT OF THE INCORPORATED CHAMBER OF COMMERCE
OF LIVERPOOL.



PEEFACE.



THE following Letters were first published in a
Liverpool journal, and are reprinted here for wider
circulation.

The "Silver Question" is now attracting general
attention, and deservedly so, for it is one of capital
importance.

The discussions that have taken place are gradu-
ally enlightening the public mind, and the time is
approaching when in the author's judgment an In-
ternational Monetary Conference could be held with
conspicuous advantage.

It is hoped that the views set forth in these Let-
ters will commend themselves to unprejudiced think-
ers, and tend toward that consummation.

S. S.

LIVERPOOL, November, 1876.



THE SILVEE QUESTION.



LETTEE I.

IS THE BI-METALLIC SYSTEM PRACTICABLE?

YOUR leading article of Monday judiciously calls at-
tention to Mr. Picton's pamphlet on the silver question,
and thus tends to keep alive the interest of the public in
this important but abstruse subject. Will you permit me
to make some remarks upon Mr. Picton's pamphlet, with
the view of continuing the discussion that was commenced
with such spirit at the Social Science Congress ?

Mr. Picton ably and clearly expresses the view of the
older English economists, and the arguments he uses are
such as at one time satisfied me that our present mono-
metallic system was the best. How I have been led to
see that the dual system, as expounded by M. Cernuschi
and other French writers, is the best, if generally adopted,
I will try to explain in the briefest manner.

It is supposed that the metallic money in the world is
pretty nearly equally divided between gold and silver.
Untill lately it may be said roughly that half the business



THE SILVER QUESTION.

of the world was transacted in gold and half in silver, or
paper founded upon them ; and as France for three-quar-
ters of a century coined either gold or silver to an un-
limited extent, making them both full legal tender, at the
ratio of 1 of gold to 15^ of silver, that ratio practically
obtained all over the world. Nor was it disturbed when
the discovery of the Californian and Australian mines
suddenly increased the yield 01 gold from six to thirty
millions sterling annually, without any change in the pro-
duction of silver. France was, in fact, the regulator of
the world, and her legal ratio was practically adopted by
all other nations that used silver money. The first blow
to this convenient arrangement was struck by Germany
resolving to demonetize silver and adopt gold as its sole
standard ; but even then there was but little depreciation
so long as France continued to coin on the old ratio. It
was only when she, fearing the enormous influx of Ger-
man silver, in self-defense practically ceased to coin that
metal, and carried along with her the Latin Union of
states, that the great depreciation set in.

The real cause of the fall in silver is neither the in-
creased production nor the diminished demand for India,
but the demonetization policy of Europe forced on by
Germany. Had the monetary state of Europe remained
the same as before the Franco-German War, and the mints
been open to coin silver at the old ratio of 15J to 1, there
would have been no deviation from that ratio to-day, and
silver would have been quoted about 5s. per ounce. The
increase in the production of silver of lato years has been



THE SILVER QUESTION.

from say ten millions annually to sixteen millions ster-
ling, and that would have no more affected the relative
value of the metals than did the increase in the produc-
tion of gold in 1848-'50 from six millions to thirty millions,
which also had no effect in lowering the relative value of
gold.

This brings us to the kernel of the whole question :
Can legislation fix a definite ratio between gold and silver,
or can it not? Our opponents say it cannot, any more
than it can fix a definite ratio between corn and cotton.
They say that the cost of production must determine the
market price of the respective metals, and that all legis-
lative interference is mischievous and futile. This would
be perfectly true if the precious metals were not used as
money. Could we conceive that we were in a state of
barter, and that gold and silver were used simply for pur-
poses of ornament, the law would of course be unable to
assign them a fixed relative value. It is, moreover, very
unlikely that either of them would bear nearly as high a
value as they do now, seeing that the chief use of these
metals is for money, and even their subordinate use for
ornaments arises partly from the factitious distinction
they have acquired on account of their higher use for
money. An entirely new set of laws is introduced from
the time that governments elevate either or both metals
to the rank of money. First of all, a vastly increased
use is given to the metal or metals so used, and along
with this increased use a much higher value than would
otherwise have prevailed.



142 THE SILVER QUESTION.

All this, however, it may be said, is mere abstract rea-
soning. The precious metals have always been used for
money, and, no doubt, were designed to be so used, and the
only point to be discussed is whether legislation should
leave their respective value to be settled by the laws of
supply and demand, or try to establish a fixed ratio be-
tween them. I hold that it is letter for the world at large
to retain them loth as full legal-tender money at a fixed
ratio, and that it is possible to do so by common consent.

The latter proposition I will try to prove first. Sup-
pose that in England all debts could legally be discharged
either by gold or silver at the rate of 1 of gold or 15 of
silver, or by bank-notes payable in either at the option of
the bank ; and suppose, further, that the mint would re-
ceive either gold or silver for coinage to an unlimited
extent, giving legal-tender notes of equal value for 1 of
gold or 15^ of silver : I say that in England it would be
impossible to have fluctuations in the relative value of
gold and silver. Neither would there be a temptation to
pay in the cheaper metal, for there would be neither cheap
nor dear, any more than there is now between gold and
bank-notes. Money is of no use except to make pay-
ments, and if no person could settle debts by silver so as
to gain any advantage as compared with settling them in
gold, why should he prefer to pay in silver ? Payment
would in fact be made as now by bank-notes, checks
etc., and the only difference would be, that the issuing
banks would hold silver as well as gold, for each metal
would be alike valuable to them. It is clear, however,



THE SILVER QUESTION. 143

that such a system, to work safely, would require the con-
sent of adjacent nations. If silver in France and Ger-
many was valued at 18 to 1, while in England it was 15^
to 1, gold would leave England, where it exchanged for
only 15^ of silver, and flow to countries where it ex-
changed for 18 of silver. England would become a coun-
try of silver currency, and France and Germany of gold.
This is just the position in which France finds herself at
present, and is, therefore, compelled to discontinue coin-
ing silver.

It is quite clear, in order to have a bi-metallic system
permanently established, that a convention of leading na-
tions is required to fix a common ratio in which they will
all coin money and pay their debts. A more proper sub-
ject for an international agreement could not be con-
ceived. All nations benefit by stability in monetary mat-
ters. Were such an agreement entered into, and all the
leading commercial nations undertook to coin the precious
metals and make them full legal tender, on the plan I
have supposed for England, it would be as impossible for
gold and silver to fluctuate in relative value all through
those countries, and, indeed, through the world, as it
would be in Great Britain on the hypothesis I assumed
above. And the greater or less production of the re-
spective metals would have nothing to do with it, just as
the sudden jump in the gold production from 6,000,000
to 30,000,000 in 1848-'50 did not depreciate gold com-
pared with silver, because the bi-metallic system then
ruled on the Continent ; neither would a jump in the



THE SILVER QUESTION.

production of silver from 16,000,000 to 30,000,000 or
40,000,000, were such to happen, if the bi-metallic sys-
tem were again adopted.

What the law cannot fix is the purchasing-power of
the precious metals in relation to other commodities.
Suppose, for argument's sake, that the joint production of
gold and silver, which is now about 40,000,000 annually,
were to become 400,000,000, we would find a rapid rise
in money prices in other words, a diminution in the real
value or purchasing-power of money ; but what the law
can do, is to prevent fluctuations in value as between gold
and silver by making them both legal tender at a definite
ratio. If, however, the law makes gold only legal tender,
silver, of course, would fluctuate like other rare metals,
such as platinum. In the same way, if silver was made
sole legal tender, gold would fluctuate like other rare
metals. If, for instance, Chevalier's proposal to demon-
etize gold, made some twenty years ago, had been gener-
ally adopted, we should have seen far more violent fluc-
tuations in the market price of gold measured by silver
than we have lately seen in the market price of silver
measured by gold. Now, as stability of value is one of
the most necessary qualities of money, I hold that it is
better to confine fluctuations to the mass of gold and sil-
ver combined than to let each metal fluctuate separately.
Gold alone has varied within this century from an annual
production of 3,000,000 to 30,000,000, or tenfold, but
gold and silver combined have only varied from about
10,000,000 to 40,000,000, or fourfold ; hence the joint



THE SILVER QUESTION. 145

metal . forms a more stable mass than gold alone. It is
like a kite with a heavy tail to it, which prevents it from
swaying to and fro ; whereas gold alone is like a kite
without a tail, which obeys every gust more readily. I
must reserve for another letter some further remarks on
the subject.



LETTER II.



IS THE BI-METALLIC SYSTEM DESIRABLE?

IN my former letter I dealt chiefly with the question
whether or not it was possible for nations by common
consent to establish a fixed ratio of value between gold
and silver, and tried to show that it was perfectly practi-
cable, provided that both metals were made full legal ten-
der for the payment of debts at the ratio fixed by law,
whether that be 15-J- of silver to 1 of gold, or any other.

I now wish briefly to point out some of the advan-
tages which would result from the adoption of the bi-me-
tallic system as thus defined.

1. It would greatly facilitate transactions between
countries using a gold and countries using a silver stand-
ard, by reducing their money, as it were, to a common
denominator. For three-quarters of a century the silver
rupee was practically worth the tenth part of a sovereign,
the silver franc the twenty-fifth part, and all other leading
silver coins some other fixed proportion, and the reason
7



146 TH E SILVER QUESTION.

of this stability was that France coined either gold or sil-
ver to an unlimited extent at the ratio of 1 to 15J. The


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