Edward Kellogg
A New Monetary System

Chapter II.
The Safety Fund
Section I.

The Constitution declares, Art. I.; Sec. VIII., 5, "That the Congress shall have the power to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures." Sec. X., I., "No State shall coin money, emit bills of credit, make anything but gold and silver a tender in payment of debts."  It is clear that Congress has the Constitutional right to coin money, and regulate its value;  to emit bills of credit, and make anything it chooses a tender in payment of debts.  This reserved right makes it the duty of the General Government to provide the money of the nation;  and it is, accordingly, bound to make money in quantities adequate to the wants of business, and to institute it in a way which will secure the effectual regulation of its value.  The Constitution as plainly calls for the exercise of the Federal power for this purpose, as for the fixing of the standards of weights and measures. Sec. X., I., declares that the States have no right to coin money, emit bills of credit, or make anything but gold and silver a tender in payment of debts. Bank bills are bills of credit, and very hazardous ones too;  for millions of them are issued without being representatives of property, and many holders have sustained great losses by their failure. According to the Constitution, the State governments have no right to establish banks, and impose this hazard and loss upon the people;  they have infringed the province of the General Government.  Having themselves no Constitutional right to issue bills of credit, they can certainly have no power to delegate such right to others.

In the plan we are about to propose for the formation of a National Currency by the General Government, all the money circulated in the United States will be issued by a national institution, and will be a representative of actual property, therefore it can never fail to be a good and safe tender in payment of debts.  It will be loaned to individuals in every State, county, and town, at a uniform rate of interest, and hence will be of invariable value throughout the Union.  All persons who offer good and permanent security will be at all times supplied with money, and for any term of years during which they will regularly pay the interest.  Therefore, no town, county, or State, need be dependent upon any other for money, because each has real property enough to secure many times the amount which it will require.  If more than the necessary amount of money be issued, the surplus will be immediately funded, and go out of use without injury.  It will be impossible for foreign nations, or any number of banks, or capitalists, to derange the monetary system, either by changing the rate of interest, or by inducing a scarcity or a surplus of money.  It will be the duty of the Government to ascertain as nearly as possible what rate of interest will secure to labor and capital their respective rights, and to fix the interest at that rate.

The plan requires the General Government to establish an institution, with one or more branches in each State.  This institution may appropriately be called the NATIONAL SAFETY FUND: first, because the money of this institution will constitute a legal tender of uniform value for the whole people, and will always be safe;  second, because the interest being fixed at a just rate it will secure the respective rights of labor and capital;  and third, the supply of money being always commensurate with the wants of business, it will effectually protect the nation from financial revulsions.

To make this currency a true representative of property, the Safety Fund must issue its money only in exchange for mortgages secured by double the amount of productive landed estate.  The money ought not to be issued on perishable property, nor on the credit of individuals, because such property might be destroyed, or the individuals become bankrupt, when the money would cease to be a representative and become worthless, except for the guarantee of the Government, and the loss would fall upon the nation.  The money, then, when put in circulation, will represent and be secured by the first half of productive property, and the interest upon the mortgages will be secured by a portion of the yearly products or income of the property.  The Safety Fund will issue its money, bearing no interest, for the mortgages bearing interest.  We have shown that money to maintain its value must not only represent property, but must always be capable of being loaned for a uniform income.  It is therefore necessary to provide not only for the issue, but also for the funding of the money.  No government can regulate the value of money unless it provide means for funding it;  this being the only way in which the interest upon it can be kept uniform.

The first of the following obligations will be the money of the institution;  the second will be a note bearing interest for the funding of the money :

No. ---------Money.Dated. ----------------
The United States will pay to the bearer five hundred dollars in a Safety Fund Note, on demand, at the Safety Fund Office in the city of --------------------------
No. ---------Safety Fund Note.Dated. ----------------
One year from the first day of Day of May next, or at any time thereafter, the United States will pay to A. B., or order, in the city of ----------------- five hundred dollars;  and, until such payment is made, will pay interest thereon on the first day of May in each year, at the rate of one percent per annum.

The money will bear no interest, but may always be exchanged for the Safety Fund Notes, which will bear interest.  Those who may not wish to purchase property or pay debts with their money, can always loan it to the Institution for a Safety Fund Note, bearing an interest of one percent per annum.  Therefore the money will always be good;  for it will be the legal tender for debts and property, and can always be invested to produce an income.

The money being loaned at one and one-tenth percent, and the Safety Fund Notes bearing but one percent, the difference of ten percent in the interest will induce owners of money to lend to individuals, and thus prevent continual issuing and funding of money by the Institution.

The Safety Fund Notes are made payable a year after date, to prevent the unnecessary trouble of funding money for short periods.  It is not probable that the Institution will issue Notes for a less amount than $500.  People having small amounts will seldom wish to fund them.  They will loan to individuals or purchase property.  If, however, it be deemed desirable to fund small amounts, they may be received, and credited in a small book, as in savings banks, and the interest paid upon these credits as upon Safety Fund Notes.

Having given an outline arid brief explanation of the proposed system of currency, we will proceed to show that the money issued by the Safety Fund will possess all the properties, and be capable of performing all the functions of money.  We have said in our description of money that it must be a representative of property.

The Safety Fund money being based on productive landed estate to double its amount will be an undoubted representative of property. Second, money must have power to accumulate.  The provision made by the Safety Fund for funding the money will secure an income beyond all contingency. Third, it must have power to measure value.  The Safety Fund money will not only possess this power equally with coins, but it will possess the additional quality of being a uniform arid perfect measure.  By establishing a uniform rate of interest, the dollar will be of invariable value, and cannot be made to fluctuate more in the measure of property than the yard-stick in the measure of cloth.  Fourth, it must have power to exchange value. Being instituted by the General Government as the legal tender, and its income power established, all persons will be compelled to receive it in exchange for property and labor.  We have elsewhere shown that any portable substance possessing these properties will be money.  The Safety Fund money will possess all the properties adapted to its use as money that belong to coins, and can be counted and carried with greater convenience, and can be more easily transmitted from one section of the country to another.  The effect of its adoption will be to annihilate all difference of exchange between different commercial points, or to reduce it to the merely nominal expense of letter postage.

Section II.
The security of the safety fund money.

It will be perceived that since the rate of interest on the money will always be uniform, and loans can always be obtained from the Safety Fund on productive property, it will be impossible to induce a financial crisis, and depreciate the value of the property on which the money is issued, so that it would not be good for the interest.  Therefore the mortgages will always be ample security for the loans of the Safety Fund;  and the money will always be a fair equivalent for property and labor, because it will always truly represent their value.  For, if the money can be loaned for a percentage interest which will buy a certain portion of the yearly products of land and labor, the legal value of the principal of the money will be equal to the actual value of so much land as will produce what the interest will purchase.  When Branches are established in all the States, every individual can borrow money, at the usual rate of interest, to the amount of half the value of his productive land.  Every dollar thus borrowed win be added to the amount in circulation, as much as if it had been imported from a foreign country or coined.  The Safety Fund will actually create all its money.

It will require a very small proportion of the property of the country to secure a sufficient currency.  The property in Massachusetts, according to the assessed valuation in 1840, averaged $406.50 to each individual.  The average wealth in property of our whole population is from three to five hundred dollars.  The amount of money needed will not, probably, exceed ten or fifteen dollars for each inhabitant.  Therefore, only three or four percent of the property of the country will be necessary to secure an ample supply of money.  The Government can in this way provide a portable legal value to any extent that may be required.  The people can borrow money from the Safety Fund in larger or smaller sums at precisely the same rate of interest.  The mortgages may be drawn payable one year after date, with one and one-tenth percent interest;  and so long as this interest shall be regularly paid, the principal may remain, in whole or in part, at the option of the mortgagor.  So, whenever a mortgagor shall have the means, he can payoff any part of the mortgage, and stop the interest.  But he will never be compelled to pay the principal so long as the interest shall be regularly paid.

No aid from large capitalists will be required to establish the Safety Fund, for the money will be made a balance against the landed estate of the people, without a specie basis.  It is no more necessary to make money of gold and silver to render it a just balance against property, than to make a mortgage of gold or silver to render it of equal value with a piece of land.  The value of the mortgage depends upon its legal power over the land and its products.  The Safety Fund money will have a legal representative value which will be capable of purchasing the mortgage, or the land, or the products of the land.  The mortgage, or the money as such, can be no more valuable made of gold than of paper.  As paper mortgages amply secure individual loans of money, so paper mortgages will secure the money issued by the Safety Fund. If people will readily loan gold and silver coins for paper mortgages on property, they must esteem the paper mortgages as valuable as the coins.  A mortgage is a lien upon a specific piece of property.  The Safety Fund money will be a general lien upon all property for sale, and a legal tender in payment for all debts.  The mortgages given to the Safety Fund will be individual obligations for the payment of money, and will be necessarily local.  But the money issued for them will be neither individual nor local.  It will be equally good in Maine, New York, Ohio, and Florida.  If its owner does not wish to lend it to individuals, he can lend it to any Branch of the Safety Fund at an interest of one percent.

It has already been stated that it is no more necessary to make money of gold and silver in order to make it good, than to make a bond or note on a silver or gold plate in order to make it good.  Still, if the people shall insist upon a mixture of specie in the currency, it can be easily provided.  It will only be necessary that the interest to be received and paid by the Safety Fund shall be paid in specie.  By loaning money at one and one-tenth percent the Fund will always be in receipt of many times the interest in specie that it can be called upon to pay.  This will preserve the use of coins as money.  It appears evident, however, that the money of the Safety Fund will fulfil all the functions of a public medium of exchange without any admixture of coins.  The Safety Fund money will probably be compared by some to the assignats of France, or to the Continental money issued by the United States during the Revolution.  But they are no more alike than a good productive soil and a desert.  There is as much difference between the paper assignats issued by France and the paper money to be issued by the Safety Fund, as between two perpetual mortgages, one bearing interest, and the other bearing no interest;  the first would be good, the second worthless.  If, as heretofore stated, the French Government had secured the payment of the assignats issued to her citizens by mortgages on productive landed estate, not exceeding half its value, and w hen payment was demanded had funded them with government bonds bearing a yearly interest, they must have continued good.  Both the mortgages and the assignats would have been representatives of property, and the yearly productions of the land would have secured the annual interest, and made them safe.  The assignats became worthless because they were not representatives of property.  If the Government of the United States, instead of issuing the Continental money, had established a Safety Fund, and had lent money for mortgages on productive land worth double the amount of the loan, and had provided notes bearing interest to fund the money, such paper money would have been a representative of property, and invariably good.  The Continental money not being a representative of property, of course proved worthless.  Had our Government instituted a Safety Fund, it would have had an abundance of money for the transaction of all business;  we should have saved the many millions we paid to France for a representative of our own property, and besides, should have prevented the great injury suffered by the country from the scarcity of money and high rates of interest, which then so much retarded business and production.

The objection may arise that if the loans of the Safety Fund be confined to the owners of land, it will place in their hands a great monopolizing power, and instead of diffusing wealth in accordance with the labor performed, will give it to the landholders.  But a little reflection will make it evident that the abundant supply of money and the reduction of the rate of interest will be of equal benefit to those who are without property, and depend on their daily labor for their support.  The owners of land will obtain loans from the Fund, either to purchase property, or to discharge debts, or to pay for labor;  and all the money borrowed for these purposes will go into circulation, and be used by other’s.  The owners of land will not borrow money to keep, for they would lose the interest on it, and be paying interest on their mortgages to the Safety Fund.  Every farmer owing money on mortgage of his farm, and paying seven percent interest, will probably borrow money from the Safety Fund and pay the debt.  The difference between seven and one and one-tenth percent on his mortgage will be in favor of the earnings of his own, or others’ labor on his farm;  the interest will absorb but a comparatively small proportion of the products.  The receiver of the payment for the mortgage cannot obtain a higher rate of interest than that charged by the Fund: he must either purchase property with the money, or lend it to individuals at one and one-tenth percent, or to the Safety Fund at one percent, interest, If he finds that he can rent out land to others for a term of years so as to secure one and one-tenth, or one and one-quarter percent, interest, of course he will purchase the land in preference to funding the money;  and the laborers who can have the use of land at these low rents, will soon lay up the means to buy farms for themselves.[1]

Section III.
The rate of interest on the safety fund money.

The law granting to all the privilege of lending money at the same rate, has an apparent fairness which is deceptive. The fairness depends upon the justice of the rate of interest, and not upon the universality of the grant.

The illustration of the one hundred families clearly shows the accumulative power of money at six percent interest, (see Part I., Chap. III., Sec. II.)  The same chapter shows this power at various rates, from seven down to one percent.  The Safety Fund can maintain any rate of interest which shall be deemed for the public good.  If it lend money at six percent, and fund at the same rate, there will be an abundant supply at a uniform interest in all parts of the country;  this currency will therefore be greatly superior to any that has ever been in use.  If $300,000,000 be required, and the interest be at six percent, the Government will gain a revenue of $18,000,000 annually, less the expenses of the Institution.  If the Branches be made offices of discount and deposit, and the deposits be reloaned, the gains will probably be doubled, and amount to say $36,000,000.  There is hardly a doubt that this latter or a larger sum is annually paid by the producers to the banks for the use of bank- notes.  It will certainly be more just for the Government to gain this for the general benefit, than to have the banks gain it for their private purposes.

But a rate of interest that will rapidly concentrate the wealth of the nation into the hands of the Government or of individuals, cannot be just.  The Government cannot institute money and lend it at six percent, without giving power to individuals to lend at the same rate, and the loans of the latter win be much greater in amount than those of the Fund, even if its branches should be made offices of discount and deposit.  Besides, as has been already shown, money is a standard, and the rate of interest governs the percentage rent on all property.  No way can be devised of establishing a high rate of interest, and doing justice to producers.  The evidence adduced in this volume upon the different rates of interest, appears sufficient to prove that one and one-tenth percent is as high a rate of interest as money can bear, and secure the rights of producers.  Money at this rate will have power to buy property;  for in England it has often been lent even at lower rates, after business had been paralysed by maintaining interest at exorbitantly high rates.  Money is national in its character, and ought therefore to be authorized only by the General Government.  The Government should never allow any money to circulate that is not permanently safe and good, and a legal tender in payment of debts.  The money should be a just legal equivalent in exchange for labor and property, and at par value in every section of the country.  To be thus a fair equivalent of uniform value throughout the country, the rate of interest must be made just and uniform;  and it is, therefore, of the first importance to arrive, as nearly as possible, at what would be a just rate percent interest.  As money is designed for public use, and is not in itself a producing power, we think the interest on the money should not only be sufficient to pay for the necessary material and labor to manufacture the money, but also for the necessary labor of loaning it as well as for the safe keeping of any money that might remain on hand unused.  Whatever rate percent interest would be required to defray the necessary expenses of furnishing and issuing a full supply of money for the use of the public, should be the established legal rate of interest, at which all subsequent owners of the money might lend it.  The first borrowers of the money would directly pay it over to others to cancel debts, or to pay for property and products.  Hence they would seldom be subsequent owners and lenders of the money, because if money should afterward come into their hands, they would be more likely to pay off their own debts, and stop the interest, than to lend the money on interest and still continue to pay interest on their obligations.

If it should take $500,000,000 of the new currency to supply this nation with money and the rate of interest should be fixed at one and one-tenth percent the income from the Safety Fund would be $5,500,000.  If it should take $600,000,000, it would make an income of $6,600,000.  At all events, we think this rate of interest would be sufficient to supply the material for making the money and pay for the labor;  as well as to pay the officers and clerks employed in the principal Institution and in the various branches of the Safety Fund.  A just rate of interest would be one that would supply the money and keep the Safety Fund in operation.  Thus the Safety Fund would be a self-supporting institution.  No good reason can be shown why the interest should be greater than is necessary to furnish the money and keep in operation the means of supplying it.

There is as great a difference in their effects between a well regulated currency with a low rate of interest that will justly distribute productions, and a currency with high and fluctuating rates, as between the fire limited to the domestic hearth, subserving the wants of the household, and the same element exceeding its useful limits and destroying the house.  Steam kept within proper bounds is usefully employed in facilitating production, but increased beyond these, it becomes a powerful agent in destroying life and property.  Money with the interest kept within proper limits, will distribute the production rightfully to the producers;  but increased interest will deprive them of their rights, and entail upon them poverty and misery.

Section IV.
Organization and management of the safety fund.

The Safety Fund may consist of a Principal Institution with Branches.  The first may be located at Washington, or some other central town, and the latter wherever convenience may require.  The Principal Institution should issue money only to the Branches, and they should be required to make weekly reports to the Principal of their loans, and also of the money returned to be funded.  The Principal, at certain times, should report the money in circulation.

For the management of the Principal, one director may be appointed by each State, and one or more by the General Government.

The States may elect the directors of the Branches by Congressional Districts, or otherwise.

The directors should receive salaries for their services, and should not be allowed to borrow money from the Institution, nor be interested in any of its loans.  They may hold their offices during good behavior, or until a certain age.  All officers and clerks may be required to give bonds, with such securities as may be deemed necessary to secure fidelity and safety.

All money loaned may be paid, in whole or in part, at the option of the borrower after one year, but the interest should be punctually paid.

In case of failure for a certain time to pay the interest, the directors might advertise the property covered by the mortgage, and sell it at auction, giving the debtor timely notice of such advertisement and sale.

Twenty-one different denominations of money will form an ample currency: viz., Three Cents;  Four Cents;  Five Cents;  Ten Cents;  Twenty-five Cents;  Fifty-Cents;  One Dollar;  Two Dollars;  Three Dollars;  Five Dollars;  Ten Dollars;  Twenty Dollars;  Fifty Dollars;  One Hundred Dollars;  Two Hundred Dollars;  Three Hundred Dollars;  Five Hundred Dollars;  One Thousand Dollars;  Two Thousand Dollars;  Three Thousand Dollars;  Five Thousand Dollars.  With these denominations of money any change can be made to a cent.

Our present banknotes are frequently altered from one denomination to another;  as, for instance, by extracting "Two" and inserting "Ten."  Against this fraud the money of the Safety Fund may be effectually guarded, by making the size of the paper conform to the denominations.  The value of each piece will then be known at a glance by its size, as well as by the engraving.  The three-cent pieces may be made an inch and a half long and an inch wide;  and the size may be increased for each successive higher denomination by adding a quarter of an inch to the width and half an inch to the length.  The different denominations may also be of different plates as well as of different sizes.

The people throughout the country will soon become familiar with the money, and there will be little danger of deception by counterfeits.

The paper for the money and Notes may be manufactured by the principal Safety Fund, and farther guarded from counterfeit by water marks, and by the kind and quality of the paper, which should be of the best material for durability.

In preparing the money for circulation no necessity will exist for the signatures of the president and cashier, more than for such signatures on coins.  Proper care in regard to the material and making of the paper, and the engraving of the plates, etc., will guard the money against counterfeits more effectually than the quality and collage of the precious metals can protect coins.

A simple and short form of a mortgage may be provided, so drawn as to save the necessity of a bond, and prevent a multiplicity of papers.  With ordinary care in the institution and direction of the Safety Fund, there will be incomparably less danger of frauds than now exists in banks.

The money for the amounts under a dollar will probably be called by the opposers of the Safety Fund, shin plasters, rag-money, a very unsafe currency for laborers, etc., but everyone of these small notes will be a representative of its nominal amount of property.  They will maintain their relative value to every other piece of money in every section of the country, and will soon be esteemed far preferable to the small silver and copper coins now in use.

Section V.
The probable amount of the safety fund money.

The quantity of money used in business is very small compared with the amount of business transacted, for it is only the average balance kept on hand.  If a man receive $10,000, keep it one hour, and then pay it out, he uses the money only one hour.  A man may be worth half a million of dollars and transact a business of a million a year, and yet his average balance may not exceed five thousand dollars.  If he deposits his money in bank, the bank makes an estimate of his balance and lends it to others;  so that even this balance is constantly in use.

The amount of money used compared with the contracts fulfilled by it, is not much greater than the number of bushels used compared with the bushels of grain measured by them.  The amount which can be kept in active circulation is comparatively small.  If the Safety Fund be established;  and loan at all interest of one and one-tenth percent on all good security, money will circulate rapidly;  and if all other money be swept from the country, it is doubtful whether the Safety Fund can keep out a sum exceeding from twelve to fifteen dollars for each inhabitant.  Estimate the population of the United States at thirty millions, and $15 to each inhabitant will amount to $450,000,000.  Allow this sum to change hands four times a week, and it will cancel $1,800,000,000 of debts each week, and in one year $98,600,000,000.  The assessed value of all real and personal property in the United States in 1860 was $16,000,000,000. The $450,000,000 passing four times a week, will in one year pay for nearly six times the assessed value of the whole property of the nation.  It is not intended that the Safety Fund and its Branches shall be made offices of discount and deposit.  If they should be made such, they would more than double the amount of their loans;  but the increase of loans would not augment the amount of money.  They would lend the money left on deposit, and thus increase their income, as banks now lend their deposits and gain the interest.[2]


1 [282/*]  If a laborer who had no property to be represented except his power to labor, could borrow money from the Safety Fund, and his power to labor should fail by sickness or death, the Safety Fund would still be bound to redeem this money with a Safety Fund Note bearing interest, and this loss would fall upon the people. (See Appendix, H.)

2 [289/*]  With the Safety Fund money, if fifty millions were hoarded and withdrawn from circulation, the amount could be at once supplied;  and it would not in the least disturb the regular interest or the value of the money.  The Fund would still receive the interest on the fifty millions;  and those who hoarded it would lose the interest, and could gain no advantage over others by again laying out the money, because their hoarding would not have made money any less plenty, and when they put it again in use, it would not in the least alter the rate of interest, but would find its way to the Safety Fund, and pay a debt due to the institution, or it would be loaned to the Fund for a Safety Fund Note bearing interest.  When money is hoarded it is taken out of use, and it is, therefore, as necessary to supply the amount thus withdrawn as if it did not exist, for it is of no use to the public so long as it is hoarded.  The Safety Fund would be as independent of capitalists as of laborers;  nor could the Rothschilds with the aid of the Bank of England affect our money or disturb the business of the nation. (See Appendix I.)