Henri Cernuschi.

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whole world benefited by the regulating influence of her
bi-metallic system ; hence it happened that when the
extraordinary gold discoveries of 1848-'50 increased the
yield of gold fivefold, there was no change in the relative
value of the precious metals, and commerce went on all
over the world undisturbed by the change.

The same happy result would flow from the readop-
tion of the bi-metallic system ; the annoyance, inconven-
ience, and loss to merchants trading between countries
using a gold and a silver standard would be at an end.
We should no longer see the rupee worth at one time the
tenth of a sovereign, at another time the thirteenth part,
and perhaps at some future time the twentieth part. We
would preserve the incalculable advantage for mankind
of speaking as it were one monetary language instead of
a babel of tongues. But this is the least advantage.
Commerce can no doubt overleap the barriers of fluctu-
ating exchanges, and our merchants, warned by the past,
can protect themselves tolerably well in the future against
fluctuations in silver, as they have done against fluctua-
tions in the inconvertible currencies of America, Russi.i,
and other countries ; business will go on in spite of these
difficulties, just as people would continue to cross the
Atlantic if steam-ships were abolished, but with less com-
fort and more risk.

2. A much greater advantage would be the gain to
the cause of honesty and fair play as between man and



THE SILVER QUESTION. 147

man. Let me explain what I mean. During the seventy
years of this century when gold and silver remained prac-
tically at the ratio of 1 to 15-J, an immense pile of na-
tional debts, railway bonds, private mortgages, and other
obligations (public and private), has been reared. The
greater part of our national debt has been contracted in
that period, with interest payable in gold. The United
States debt has been piled up also, with interest payable
in gold ; the debt of France, with interest payable in
either gold or silver ; the debts of Russia, Austria, and
Italy, with interest payable part in gold and part in
silver ; the rupee debt of India, with interest payable in
silver, and so on with the minor states. These engage-
ments represent thousands of millions sterling, and con-
stitute the chief investment of the savings of a large
portion of mankind, including the property of multitudes
of widows and orphans. The same may t be said of the
borrowings of railway and other private corporations,
whose interest is payable throughout these countries in
one or other metal, or in both.

The innumerable multitude of people who lent this
money did so on the faith that the standard in which
they were paid would not be tampered with by violent
monetary changes. They may have known little of
monetary laws, but they knew from experience that
gold and silver were alike valuable at the ratio of 1 to
15f, which had ruled during their lives and the lives of
their fathers, and it was the implicit faith in this fix-
ity of value which induced English capitalists to lend



14:8 THE SILVER QUESTION.

100,000,000 to the Indian Government, with interest to
be paid in rupees at the rate of 4 or 5 per cent., and vast
sums to other countries, also to be paid in silver. The
same confidence made the French peasant empty his old
stockings of silver five-franc pieces and gold napoleons
and lend them to his Government, and made the thrifty
German invest much of his savings in Austrian silver-
paying securities. On the other hand, Russia and other
foreign countries, notably the South American republics,
borrowed much money in London, engaging to pay the
interest in gold, though their own revenue was collected
in silver, because they expected (as past experience had
taught them) that they could procure the gold to pay
the interest by exchanging for it 15 times the weight
of silver.

In short, a large network of borrowing and lending
has been drawn^ over the entire civilized world, based upon
the belief that either metal was alike valuable at the ratio
which had so long prevailed.

Any one can see at a glance what an evil it would be
to have gold and silver, as it were, divorced from each
other and following incalculable laws of relative value in
future, like the unknown motions of comets. At present
all the nations and individuals who have contracted to
pay silver are saving much of their legitimate outlay.
The unfortunate recipients are mulcted out of their just
dues. Those, again, who have engaged to pay gold will
gradually find, by the operation of another law (which I
have not yet referred to), that their obligations will ^<-\



THE SILVER QUESTION. 149

heavier and heavier, and that their creditors will reap an
undue advantage.

It is as if all contracts for the sale of land had
been made by a yard-measure throughout the world, but
in some countries the yard was divided into three feet
and in others into thirty-six inches. For a long time
these measurements coincided, but at last, by some freak
of fortune, the inch came to be shortened by a quarter,
and so it came to pass that people in one country who
had bought land in another expressed in the common
term "yard," found that they were getting twenty-five
per cent, less than they had paid for. The analogy
would be closer if we could suppose that a great portion
of the earth's surface had been so transferred during a
long period in which payment was deferred, and that
when the buyers had paid their money and taken up the
titles, they suddenly found that by a trick of words they
had been defrauded out of a quarter of what they had
paid for and believed that they would get.

Of course this parallel is imperfect, for we know well
that no willful monetary fraud has been practised by any
country ; but the effects of the revolution we are passing
through are very similar to what we have described, and
it must be apparent to any one who loves to see justice
and fair play among mankind, that if this wrong can
be obviated, it is worth attempting, and ought to be
attempted.

3. But, thirdly, another weighty consideration is this :
the countries using silver money that is, fully half



150 THE SILVER QUESTION.

the world will find that the inconveniences are so great
(provided no remedy is applied) that they will be driven
ultimately one after another to demonetize silver and use
gold exclusively as their standard. The result of that
will be that silver, instead of being worth, as at pres-
ent, 4:8. 6d. per ounce, say about 17J to 1 of gold, may
drop to 2s. per ounce, or some other figure so low as prac-
tically to beggar all nations that have borrowed in silver
and have to pay in gold, and virtually confiscate the
property of all who have lent their money to nations or
individuals for payment of interest in silver.

No doubt, if such a state of things were to happen,
some countries would have to pass into liquidation and
make a composition with their creditors, and ultimately
matters would settle down everywhere, after excessive
suffering and confusion, into a universal system of gold
payments ; but the necessary consequence would be, that
the metallic basis on which the business of the world was
done would be immensely reduced ; it would be as if the
mines were shut up for several years. Instead of say
1,400,000,000 of gold and silver to do the business of ex-
change, there would be 700,000,000 or 800,000,000 of gold,
and a limited amount of silver as small change. Money
values would fall greatly ; national debts like our own
would press much more heavily, and a period of suffering
and contraction of business would ensue similar to what
the United States has experienced on coming painfully
back from inflated paper toward specie payments.

No doubt at least the process would be accomplished,



THE SILVER QUESTION. 151

and, after a century or so, the world could trade as well
on gold alone as on gold and silver combined. But why
have the intermediate chaos if it can be avoided ? My
contention is, that it can be avoided by an international
monetary convention between the four leading commercial
nations perhaps between England and France alone ; and
in this convention all would be gainers and none losers,
for, in the long-run, all the best interests either of men or
nations are served by keeping their obligations inviolate.



LETTER III.



IF not intruding too much upon your space, I should
like to offer a few more remarks upon the silver question.

There cannot be a doubt that at first sight, and before
the question is fully studied, the bi-metallic system, as
advocated by M. Cernuschi, Mr. Williamson, and others,
appears to be opposed to the principles of " free trade,"
and to ignore the laws of " supply and demand." This
generation of Englishmen has been trained up to believe
in free trade so implicitly, that a presumption is raised
against any scheme which involves legislative interposi-
tion.

It appears at the first blush that gold and silver, being
articles produced by human labor, must have their re-
spective value determined by the same laws as cotton,



152 THE SILVER QUESTION.

or corn, or coal, or iron. It would be folly to ignore the
strength of the prejudice we have to encounter from the
commercial and economical training of the people of this
country. It all the more devolves on us to show how
far those " laws of supply and demand " bear upon the
question at issue, and to point out clearly where they
hold good and where they fail to be applicable. Now it
is an undoubted fact, that the price of all articles intended
for consumption is determined by the relation of supply
to demand at any particular time, and over longer periods
by the cost of production. The price of cotton or sugar
at the moment is determined by the state of the market,
but ultimately and in the long-run by the cost of produ-
cing them. Every one knows that if cither of them fell
for some years much below the cost of growing it, produc-
tion would fall off, and the price rise correspondingly.
The connection between the two is so palpable that every
one can perceive it. This law, however, acts with im-
mensely greater force upon articles of trade than upon
the precious metals, for the simple reason that most crops
grown in the world are consumed within the same year,
or at most the following one, and pretty nearly the same
may be said of manufactured goods. The world's produc-
tion of all consumable articles is but a few months ahead
of the world's consumption ; hence any falling off in pro-
duction quickly brings on scarcity and such high prices as
to stimulate production again.

It is altogether different with the precious metals.
Their durability is so great that probably a considerable



THE SILVER QUESTION. 153

proportion of all the gold and silver that has been ex-
tracted from the bowels of the earth since the days of
Abraham is still in existence either as money or ornaments,
and the addition made annually to this mass by the yield
from the mines is so small that it hardly affects the bulk
appreciably ; hence it happens that long periods of small
production, such as the last century and the early part of
this, scarcely increased the purchasing-power that is, the
real value of the precious metals. Neither did the ex-
traordinary discoveries of Australia and California, which
increased the gold production fivefold, appreciably lower
the purchasing-power of money for several years ; and even
yet economists dispute whether it has been lowered^so
much as 15 or 20 per cent, in consequence of the great
production of gold for twenty-eight years past.

These remarks are made to show how little the " cost
of production " has to do with the value of the precious
metals at any given time, and how the phrases that are
derived from commercial experience are misleading when
applied to monetary matters. It would almost seem as if
it were the design of the Creator to supply the precious
metals in such quantities that their value should be more
fixed and stable than that of anything else ; and, with the
experience of 4,000 years to guide us, we may fairly con-
clude that the future has no monetary cataclysm in store
for us, to upset well-devised schemes based upon the com-
parative stability in value of the precious metals.

All this, however, is merely preliminary to what I have
to say as to the value of gold and silver in relation to one



154 THE SILVER QUESTION.

another. The crucial point of the whole question is, Can
legislation fix a ratio between them, or does the cost of
production fix it, irrespective of all legislation f Our op-
ponents say that gold will fall in relation to silver when
produced more cheaply, and that silver will fall in relation
to gold when produced more cheaply in spite of all laws
of mankind to the contrary. I marvel that none of them
attempt to explain why it was that in 1848-'50, when the
production of gold increased all at once fivefold, and its
cost of production, perhaps, fell nearly as much, it did not
vary in value as compared with silver. Here was a crucial
test of the soundness of their theories ; the very thing
happened which should, according to their view, have
shattered all bi-metallic theories. There never was an in-
stance before of a more remarkable change in the cost of
production and the quantity produced of one metal com-
pared with the other.

We all know what would have happened if the produc-
tion of wool had suddenly increased fivefold, while that
of cotton remained unchanged. Wool, instead of being
worth more than double the price of cotton, would for
some time have been cheaper, just as cotton during the
American war, from extreme scarcity, became worth more
than wool for a short time. Why did we not see gold, in
place of exchanging for 15 times its weight of silver, as
in 1800-'48, suddenly fall till it only fetched eight or
ten times its weight of silver? The cost of producing sil-
ver and the quantity annually produced remained about
tin same during 1850-'60 that it was during 1840-'50 ;



THE SILVER QUESTION. 155

but gold was produced at the rate of 30,000,000 annually
in place of 6,000,000, and during the first flush of gold-
mining the cost of producing was vastly less than it had
been for centuries before.

Is it not present to the recollection of most people
what fortunes the first miners in Australia and California
made? We would not be surprised if statistics could
prove that in the first year or two of the gold discoveries
the average takings of each miner were 1 per day, where-
as probably the average earning in all the gold and silver
mines of the world, up till 1848, was not more than 5s. per
day ; that is, the cost of producing gold, as measured by
the wages of labor, fell to one-fourth of what it was before,
while that of silver remained unchanged. We could not
imagine any set of circumstances more elaborately con-
trived to bring out into bold relief the so-called " cost-of-
production" theory in relation to the precious metals..

All the arguments of our opponents would go to
prove that silver must have mounted up quickly to 10s.
per ounce in the London market ; but, strange to say,
nothing of the kind happened ! The price of silver was
not affected ; it kept exchanging at the old ratio of 15J,
to 1 of gold, just as if the gold-mines had never been
discovered ! How is this to be accounted for ? We have
not heard a word of explanation from our opponents.
Surely the best test of any theory is its power of explain-
ing phenomena. Did not astronomers find out the false-
ness of the Ptolemaic theory by its inability to explain
some of the movements of the heavenly bodies ? Would



156 Til E SILVER QUESTION.

not the calculations of modern astronomers be discred-
ited if eclipses did not tally with their predictions ? In
the same way, the monetary theory which accounts for all
fluctuations of gold and silver simply by the respective
cost of producing each metal, utterly breaks down at
the very point where, if true, it should be infallibly de-
monstrated. I repeat that the true and the only explana-
tion is, that the bi-metallic system of France then in full
force and followed more or less on the Continent, whereby
gold and silver could be coined to an unlimited extent and
made full legal tender at the ratio of 1 to 15J, prevented
either metal in any part of the world fetching more or
less than that ratio. It was nonsense to suppose that a
gold-miner in Australia would exchange his gold any-
where in the world for ten or twelve times its weight of
silver, when by coining it in France it exchanged for 15J
of silver. The bi-metallic system of France was, in fact,
the monetary safety-valve of the world. It prevented
gold sinking indefinitely in relation to silver, and thus
producing a far wider range of disturbance than the fall
in silver has produced now.

I hold, therefore, that the proposition is established
beyond controversy, that legislation can fix a definite
ratio "between gold and silver notwithstanding great
fluctuations in the relative supply of either metal, and
;/rif changes in their cost of production. There can !<
no doubt that the leading commercial nations combined,
probably even France and England alone, can do for
silver now what France and some other Kurop.-.-m stairs



THE SILVER QUESTION. 157

did for gold in 1848-'50. There can be no reasonable
doubt that bi-metalism can deal in 1876 with a twofold
production of silver as well as it did with a fivefold pro-
duction of gold in 1848-'50. The proof seems to me
indisputable, and our opponents must either grapple with
it in place of dealing with vague generalities, or admit
that they have not probed the subject to the bottom.



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Online LibraryHenri CernuschiNomisma; or, Legal tender. → online text (page 9 of 10)