Edward Kellogg
A New Monetary System

Part II.
A True Monetary System.

Chapter I.
The security of a paper currency.

We now enter upon the most important and yet the simplest part of this subject;  namely, the institution of a true monetary system, by which the distribution of wealth can be properly regulated.

It has been proved in our foregoing arguments, that the amount of a currency should be equal to the wants of the people, and that gold and silver, of which the quantity is necessarily limited, are not the proper materials.  It remains to be proved that a paper currency can be established, which shall be always adequate in amount, and which can be maintained at a uniform value.  The present chapter will offer some considerations of the security and competence of a paper currency, as a medium of exchange.

First, we may notice some of the ways in which paper is now used, and in which a legal power expressed upon it is deemed sufficient security.  All titles to land, all loans of money on bond and mortgage or otherwise, the payments for all lands, and for every other species of property on a credit, are secured by paper.  These papers must, of course, be made legal liens upon property or they would be worthless, for their value must consist in their control of real property, and not in any worth inherent in their substance.  Money of every description, gold, silver and' paper, is created by the laws, and its value consists in its being made by laws a public lien upon all property for sale.

The difference between a private obligation, such as a mortgage, or note of an individual, and money, is, that the two former are private liens, one on a specific piece of property, the other on any or all the property of an individual;  while money is a public lien on all property for sale, whether that property be owned by individuals or by the Government.  Between individuals and the Government, the law secures the fulfilment of contracts by mortgages and other paper instruments.  If paper instruments can be made safe representatives of property between two individuals, no good reason appears why paper instruments cannot be made safe representatives of property for any number of individuals.  If paper instruments can be made representatives of property for limited periods of time, no good reason is perceived why they cannot be made safe representatives of property when mage payable on demand.  And if made payable on demand in something capable of producing an immediate income, they are then made competent to fulfil all the uses of money;  for money can have no other use than to exchange for property, or to loan for an income.

Governments have falsely assumed that the value of money consists in the inherent worth of the gold, silver and copper materials out of which it has been coined.  This is not only palpably a false assumption, but the laws of nations prove it to be so;  for in nearly every civilized nation, the governments have authorized paper money (when secured by State and National stocks, bonds and mortgages, and so forth,) to be issued in the form of banknotes and to circulate as money.  England has made paper money a tender in payment of debts;  and in other countries, where paper in the form of banknotes is authorized to be used as money, although it is not a tender, it is generally received as such.  Banknotes are called money, although the laws do not make them a tender for debts.  Banks are, however, chartered by law, and, therefore, the banknotes issued by them are generally considered as money, and answer all its purposes.  They are founded, or based on a promise to pay specie on demand.  Let us see, however, if they are not practically money, instead of being merely representatives of gold, and silver coins.  A man exchanges at a bank in New York a hundred dollars in specie for a one hundred dollar banknote, and takes it to the western country to buy land.  The note is thus put in circulation there, is loaned and reloaned on interest, and is used in the purchase of property and products.  It is continually active, while the silver for which the banknote was taken in lieu, lies dead in the vault of the bank, and is neither used to purchase property or products, nor to fulfil contracts, nor to produce an income.  The banknote has performed all, while the specie has performed none of the functions of money.  If the former should circulate for any number of years, and should be called for an income, and used to purchase property thousands of times, and when it was returned to New York, there should be no specie in the vault of the bank to redeem it, still, every purchase made by the banknote would be valid, and every mortgage for which it had been received would be a binding lien upon the property of its drawer for the payment of specie both for the principal and the interest.  Coins and banknotes have a legal power to accumulate, not natural to either of them.  Both are generally received in tender for debts, so that one is practically as much money as the other.  In fact, if either is to be despoiled of its character as money, it must be the specie, for this is mostly deposited in the vaults of the banks, and while so deposited is not practically money;  but the banknotes which perform more than ninety-five hundredths of the exchanges, are really the money of the country, and fulfil all its uses with greater convenience and celerity than could gold and silver.  Paper made to represent landed property instead of specie, and endowed with legal power to accumulate, measure, and exchange property would answer every purpose of money, and would be money.

The abundance of paper is not an objection to its use as the material of money, more than to its use for deeds, notes, bonds and mortgages.  It would be a better material for money than gold and silver, for these metals are limited in amount, and are troublesome, expensive, and hazardous to remit.  If a sufficient gold and silver currency were presented to this nation free of cost, the inconvenience and expense attending the circulation and transmission of the coins, would far overbalance the whole labor and expense to provide and circulate a paper currency.

The question to be settled then, is this;  can a currency be formed entirely of paper, which will buy the productions of labor as readily as gold and silver coins -- not whether a silver spoon can be made out of a paper dollar, or whether a gold watch-case can be made out of a ten dollar bank bill as well as it could be out of an eagle.  We do not want money to make utensils and ornaments.  We want money for a medium of exchange, to any such articles as are useful to us, and if it cannot be made of paper so that it will be as good to the man who sells his labor or his products as gold and silver coins, we must not have a paper currency.