Edward Kellogg
A New Monetary System

Chapter VII.
A well-regulated currency impossible under present laws.

Our whole banking system is based upon a credit given by law to banknotes, for which the people furnish the security in their indorsed notes and State bonds.  For the legal representative has no value in itself;  it rests upon actual capital, the earth and its productions, and not upon the inherent value of its material.  It may then be asked, why the State governments cannot bank on the same security, and appropriate the gains to the public benefit, instead of allowing a few individuals to acquire large fortunes by private banking.  But banknotes issued by a State would soon depreciate.  The currency must be national, and pass equally well in all sections of the country.  If a State should make paper money a tender (and this is forbidden by the Constitution), the money, like the money of the banks chartered by the States, must necessarily be redeemed with specie to secure public confidence.  But this local redemption would make the money of unequal value in different sections of the Union.  Another difficulty would be incurred by a State bank, that unless a few of the largest capitalists were included as stockholders, and the interest of the wealthiest men identified with the bank, it would soon be compelled to suspend payments.

A United States Bank could not regulate the currency.  Before the General Government could establish the institution, it would be obliged to consult a few large capitalists to ascertain whether they would take the stock.

If the charter were not one which would probably secure an income quite as good as any other investment, they would refuse the stock, and the Government could not establish the bank.  If the Government should deem three percent a just rate of interest, and should limit the dividends at this rate, the stock would not be taken.  But should it allow six percent interest, and leave the dividends unlimited, both native and European capitalists would call it a good investment for money, if they could retain sufficient control of the institution.

If under our present laws making all notes redeemable in specie, the General Government should establish a bank, and issue enough paper-money for all business transactions, at a low rate of interest.  Our large capitalists would array themselves against it by collecting their debts in banknotes, and demanding specie from the bank.  Such a bank, established on a specie basis, could not be sustained a month.  The Government and all the producers could not prevent its total failure.

Monetary laws are the most important subjects for legislation.  It is the duty of every national government to institute and regulate the medium of exchange;  but that this duty has been imperfectly discharged, appears from the fact that where specie is made the only tender in payment of debts, neither the government nor the mass of the people have had or can have, any adequate control over it.  Capitalists control the money, and through the money control the Government.  The defect of the present monetary laws, further appears from the variations in the rates of interest on Government stocks, perfectly secured at all times, but constantly fluctuating in value.  If the Government does not secure a uniform value to money for its own use, how can it be said to regulate the currency of the Country.

It is impossible to secure to labor its earnings, under systems by which the Government and the people depend, upon a few capitalists to furnish the medium and standard for the distribution of the productions of labor.  In the plan about to be developed, the whole people, through Congress, would hold the power, and fix the rate of interest.  They can by a vote put the system in successful operation without consulting capitalists, banks or brokers.


In the foregoing chapters the following propositions have been considered, and, it is believed, fully sustained.

1.  That there is an essential difference between intrinsic value and the value of money.
2.  That any material may be made money, by endowing it with the following legal powers, namely, the powers to represent value, to measure value, to accumulate value by interest, and to exchange value.
3.  That money which does not represent its full amount of actual value, carries upon its face a false pretence;  nothing can in fact be money, that does not represent property.
4.  That money, as a measure of value, is controlled by the rate percent interest that it bears.
5.  That the necessary effects of the present rates of interest, are to accumulate property in large cities, and in the hands of a few capitalists.
6.  That the present rates of interest greatly exceed the increase of wealth by natural production, and consequently, call for production beyond the ability of producers to Supply.
7.  That the rate percent interest determines what proportion of products shall be awarded to capital, and what to labor.
8.  That in proportion as the rate percent on money is increased, the value of property and labor is decreased.
9.  That a currency constantly fluctuating in value, by varying rates of interest, is no more suitable as a medium of exchange than an elastic yard stick is fit for a measure of cloth;  that justice requires uniformity of value, and that our present currency is devoid of this quality.
10.  That our present banking system rests upon a fictitious basis, is unsafe, and is productive of many and great injuries;  and while it calls upon producers for a large sum of money to pay for the use of its banknotes, at the legal rate of interest, it assists capitalists, brokers, etc., in monopolising money, and enables them to extort large sums from merchants, mechanics and other, beyond the legal rate.
11.  That the currency, to be of uniform value, must be limited only by the wants of business.
12.  That credit is indispensable.