Edward Kellogg
A New Monetary System

Chapter IV.
Objections to the safety fund considered.
Section I.
Objections to a paper currency on account of foreign trade considered.

When the adoption of a paper currency within our own limits is advocated, questions arise concerning the adjustment of our debts with foreign nations, among whom gold and silver are the only legal tender. Great embarrassments are apprehended because our paper money would not be received in payment of debts contracted and payable abroad.

The exports and imports of the United States are nearly equal;  probably our whole exports do not amount to more than a twentieth part, or five percent of the yearly productions of our labor.  Certainly the disposal of five percent of our productions is not a sufficient reason for maintaining a metal basis for our currency, which must inevitably affect the market value, and disturb the regular and just distribution among ourselves of ninety-five percent of our productions.  The chief object of a currency is to effect the internal exchanges of products with facility and justice.  Such a one could not impair foreign trade, nor do injustice to other nations.  The following illustrations will make it evident that the use of a paper currency at home, instead of disturbing foreign trade would greatly facilitate it.  Trade between nations is carried on by individuals, and not by governments.  The governments simply make the laws, and fix the standards by which the value, weight and quantity of articles of trade are to be determined, as also the tariffs of duties on imports and exports.  Individuals, then, export or import goods as their interests dictate, and receive for them the money in use where the goods are sold.  For instance, importers of goods for the New York market, take in payment for their sales the money current in the city.  They do this when the banks pay specie.  They did the same in 1837, when the banks had suspended specie payments.  If they must remit the proceeds of the goods, they buy cotton, or other produce for shipment and sale abroad, or bills of exchange, or specie, as may best subserve their interest.  English exporters to New York receive in payment for their goods our current money, and invest the money as they deem most profitable.  If we had none but paper money, English exporters to New York would sell their goods for our paper money, buying with the proceeds our products, cotton, flour, or tobacco, or bills of exchange on England, or bullion.  Or, they could lend the money here as they now do and purchase products for shipment to England with the interest, or reloan the interest. If our paper money would buy our own calicoes and broad- cloths, it certainly would buy English calicoes and broadcloths in our own market.  There is no reason why we should provide a currency to pay for the products of foreign labor different from that which pays for home labor.

If we import fifteen millions more than we export, this balance will draw interest against us until we can pay it in specie or products.  If State or United States stocks be sent abroad and sold to pay the debt, it is still a form of credit for which we must pay the interest.  There is certainly no greater necessity for our Government to provide means for our merchants to pay their debts to foreign merchants, in such cases, than to provide means for southern merchants to pay their debts to eastern merchants, in cases of a partial failure of the cotton crop.  When in any year southern merchants any of eastern merchants more goods than their crops will pay for, the latter must wait for the next crop, meanwhile receiving interest on the amount due.  If our Government maintains a currency which a balance of imports over exports demanding a shipment of specie must necessarily derange, and subject debtors to extravagant rates of interest, this legal act must cause greater loss to the people than the failure of the crops which would turn the balance of trade against them.  The only embarrassment which could occur in our foreign trade, from the use of paper money, would be delays in payments when the exports should exceed the imports;  and the occurrence even of this would be rendered much less probable by the use of paper money, at a low rate of interest, than it is with our banking system, and high rates of interest.  The greater facilities afforded to production would yearly save an immense amount of imports;  and the difference in the interest account between the United States and England, would save our people many millions of dollars every year.  If we had a sound paper currency, and did not depend on gold and silver, to make our internal exchanges, we could send all our gold and silver coins out of the country to adjust our foreign balances, without deranging our monetary affairs, or enabling foreign or native capitalists to embarrass the exchanges of our products among ourselves.  If we now have 50,000,000[1] of coins, we could ship them, and cancel this amount of our debt to England, by paying our Government and State bonds, and thus save $3,000,000 interest, annually paid to the foreign holders of our bonds, for the use of a representative of our own property.  The money, too, on which we pay this interest, goes mostly into the vaults of our banks, and lies there dead, while our banknotes make the exchanges.  It previously lay idle in the vault of the Bank of England, while the notes of that Bank performed the exchanges in England.

But suppose, upon its arrival here, every dollar of the specie should go into active circulation, what service would it render us?  It would only assist us to effect our internal exchanges;  we should still be obliged to make all our products by our labor, as much as if we had used our own paper money to make our exchanges.  If the Bank of England should send $50,000,000 of her banknotes to the United States, and our laws should make them a tender for debts, they would be no more useful to us than $50,000,000 of our own currency;  and we should be compelled to pay to England $3,000,000 worth of our products yearly, in interest.  If we sent the bonds of our Government to procure the notes of the Bank of England, or to procure the coins, the property of the United States would secure the money while it remained here.  The money would become a representative of our property.  Before it could again become a representative of the property of England, we should have to send back the $50,000,000 to England and take up our bonds.  As long as the money remained here we should pay to England $3,000,000 yearly, in interest, because the bonds of our Government bear the interest, and not the money.  Money is always a dead capital in the hands of the holder.  Even after its arrival here, every person who kept it a day, would keep it at the loss of the interest for that day, because money has no power of growth beyond that given by law, which is as impotent for actual production as the picture of a horse is to perform the labor of the horse.  We might as well pay to England $3,000,000 yearly for a man to represent us in Congress, as to pay this sum for a representative of our property.

With a just monetary system, we should no more depend upon a foreign nation for money to represent our own property in our own country, than for the air we breathe.  When we make our own property the basis of our currency, and furnish all the money we need for the exchange of our own products among ourselves, no foreign nation will have power to affect our money market, and derange the internal exchanges of our products, more than it could induce a scarcity of air, and thus disturb our breathing.  No scarcity or abundance of money in foreign nations would affect our monetary system.  Gold and silver coins would be imported only to convert into utensils and ornaments, or for re-exportation — these metals could never be needed for money.  If a paper currency in this nation were properly instituted, it would become known in England, and it would be a thousand times more likely to be received there than our bank paper.  But if it would not pass there at all, many advantages are to be anticipated from its adoption. Bills of exchange, on foreign nations, could be much more easily;  obtained than at present, because balances, under this system, would probably be in our favor.  If our monetary system were such as always to supply the necessary quantity of money at a just and uniform rate of interest, so that production should never be impeded by a scarcity of money or high rates of interest, no one acquainted with the trade and resources of our country can doubt that the amount of our yearly productions would be increased several hundred millions of dollars.  The greater the amount of our productions, the greater the amount that we should have to export, and the less we should need to import, and the balance of trade would necessarily be in our favor;  and this balance we should be compelled to take in gold and silver, or leave on interest in foreign nations.  The foregoing considerations make it evident that no unfavorable results are to be apprehended to our foreign trade from the adoption of a paper currency at home.

Section II.
Sundry objections — The effects of the safety fund on our banking institutions, etc., considered.

It may be well to examine a few more of the prominent objections which will be urged against the adoption of the Safety Fund.  Our banking institutions will probably complain that its establishment will infringe the chartered rights granted to them by the States.  But in instituting the Safety Fund, the General Government will not withdraw their charters, nor pass any law preventing them from banking.  Doubtless it has the right to prohibit the issue of such bills of credit as banknotes;  but this will not be necessary.  The Government will simply provide a means whereby the people in every section of the country can obtain a fair representative of their productive landed estate, at one and one-tenth percent interest, instead of being compelled to procure from banks and individuals an imperfect and unsafe representative of their property, and at six, seven, or eight percent interest;  as much for the use of a representative as the crops of their land are worth.

It is a frequent remark that legal enactments have no more effect upon the value of money than upon the price of wheat, and that competition in lending money will equitably regulate the rate of interest.  By establishing the Safety Fund to lend money at one and one-tenth percent to all who offer the required security, and not interfering with the chartered privileges of the banks, we shall ascertain whether legal enactments have any power, and the advocates of regulating the rate of interest by competition among the lenders of money, will also have an opportunity to test the correctness of their opinions.

Banks will object that they do business on a specie basis, and the Safety Fund on a land basis.  It may be difficult to show that the former is better than the latter;  for all kinds of money must be as useless without land and products to be exchanged, as yard-sticks with nothing to be measured.  It will be fair towards the farmers, mechanics, and merchants, for the Government to institute a paper currency, and equally fair towards the banks;  for their banknotes are no more legally payable in specie than the indorsed and other notes, and even the book accounts of private citizens.  If the Safety Fund money will be a safe medium of exchange for products, it will be a just equivalent to pay debts to  banks, because the stockholders can buy products or land with it;  therefore the issue of a tender based on landed estate cannot do injustice to our banking institutions.

The Safety Fund money being made the legal tender, the banks cannot refuse to receive it in payment of debts.  They can easily and safely collect in their dues, withdraw their circulation, and wind up their business without causing a scarcity of money, or any panic in the money market.  We shall then have nothing circulating as money which is not a legal tender.  If the banks shall still deem their specie more valuable than the paper money of the Safety Fund, and in closing up their business shall not have as much specie to divide among the stockholders as they originally paid in, or if they shall have to pay the whole capital stock in Safety Fund money, still no injustice will be done to them, for the law making paper money a tender in payment of debts, gives to it a value equal to that possessed by gold and silver money regulated at the same rate of interest.  While the establishment of the Safety Fund can do no wrong to the banks, it will greatly benefit those engaged in production and distribution.

Believers in the great intrinsic value of gold and silver coins, have nothing to apprehend from the adoption of paper money as a tender in payment of debts, and the reduction of interest.  The institution of paper money, and the rejection of coins as a tender, can have no more effect on the intrinsic value of the precious metals, or upon the desire to possess them on account of this value, than the enactment of a law that wheat shall be transported only on horseback will alter the nutritious properties of the wheat, and the desire to use it for food.  One would suppose that those who so highly prize gold and silver coins for their intrinsic value, would be strong advocates of paper money;  the coins being released from their use as money, the gold and silver would easily and naturally fall into their hands.[2]

It may be objected that if money be made so plenty, the people will run into extravagant speculations;  but a little thought will make it evident that the system will prevent great fluctuations in the price of property, and of course remove the inducements for speculations.[3]

It may be objected that so great an alteration in the medium of exchange and measure of value, will derange and unsettle the value of property, introduce confusion into the various branches of business, and break down all existing relations between money and property.  But in substituting a better for a worse, the means to effect the change must be improvements;  and every stage, from the commencement to the entire exclusion of the present currency, will be a succession of benefits to the mass of the people.  The change will only lessen the power of capital over the future productions of labor.  It will deprive no man of the use of his property or money;  both will be at his disposal as much as under the present monetary system.

Another objection will be the risk incurred by unfaithfulness in the officers appointed to manage the Institution.  Every institution must have officers, and a certain amount of power must necessarily be confided to them;  consequently a risk of unfaithfulness must be incurred.  But other circumstances being equal, the risk is greater or less, in proportion to the action of self-interest;  and according to the plan of the Safety Fund, no officer will be allowed to borrow money from the Fund, nor to be interested in any of its loans.  Bonds will also be required for the faithful discharge of duty.  But, granting there may be risk, yet it will be almost nothing compared with that now incurred under the banking system, where the officers have their own interests to serve in various ways, and especially by increasing the rates of interest and using the funds of the banks for their private advantage.

It may also be objected to the Safety Fund, that it will lessen the incomes of widows and orphans;  but there are very few of this class who have incomes.  Objectors on this ground will therefore do well to extend their sympathy so as to embrace the nine-tenths whose only means of support is the scanty compensation for their daily and excessive toil, and whose condition, and the reward of whose labor, as well as the earnings of those who have incomes, will be greatly improved by the reduction of the interest on capital.  Their sympathies will then lead them to advocate the Safety Fund, unless they are actuated by some other motive than commiseration for the needy.

The greatest difficulty, however, to be apprehended in the introduction of the new currency, will be found in the attachment of the people to ancient laws and customs, sanctioned by the greatest statesmen of the past, and ages of experience;[4]  but this feeling operates with the same force in other things, and has been found to yield in favor of improvements introduced by the progress of discoveries in the arts and sciences.  There needs only undoubted proof that an evil exists, and that a remedy can be applied for its removal, in order to secure the reformation.  We have already shown that great evils have arisen from the unjust monetary laws of the past, and to our mind, conclusive proof has been offered to sustain this point.  It is now incumbent on objectors to show, for instance, that the inhabitants of cities produce more for the people of the country than the latter produce for the former;  that a man by standing on the corner of a street a few hours in a day to lend the legal representative of value to the necessitous at exorbitant rates of interest, produces more of the necessaries of life than a hundred industrious farmers and mechanics;  that the yearly use of the present banknotes in the State of New York is really worth as much to the people as the $4,435,333 worth of products which they are compelled to sell annually to pay the interest;  or that one and one-tenth percent interest would secure to producers a greater proportion of the products of their labor than they are entitled to receive.  If they can prove that the productiveness of land and labor is in proportion to the rate of interest, or that the public good requires that the wealth should be concentrated in a few hands, they will then have shown the superiority of our present monetary system.  These are things of which farmers and mechanics and other producers can judge as well as any statesman or lawyer in the country.  If scarcity of money and high rates of interest do not affect the market value of labor and products, let it be clearly shown to the producing classes.  If such questions be evaded, it is but fair to infer that the advocates of existing monetary laws are willing or desirous that the oppression of the producers should be continued, and the people be kept ignorant of the causes of their poverty, instead of having the reward of their labor and their business transactions regulated by a standard which they will perceive to be just, and of which they can understand the operation.

It may be admitted that the theory of the Safety Fund is good, but impracticable at present;  it is calculated for some future generation, when men shall have become more intelligent and virtuous.  If the same faith shall be held by the generations which are to follow us, it will be difficult to point out at what period this desirable reformation will occur, because the evil of our present system will always be in the present, and the good of the plan proposed in the future.  We are, however, persuaded that a large majority of the people ate aware that their present depressed condition may and should be exchanged for something better, and the Safety Fund will be regarded by them as neither too Utopian nor visionary to be made immediately operative for their benefit.  All the objections to the proposed currency, upon the ground that it will lessen the incomes of capitalists who are supported by the labor of others, only serve to show the true working of the Safety Fund system;  for its object is to furnish a standard of distribution which will cause men to sustain such mutually just relations as to render it generally necessary for all to render an equivalent in useful labor for the labor received from others.


1 [298]  Written before the introduction of gold from California — [M.K.P.]

2 [302/*]  For thousands who are now compelled to have them to pay debts would not use them;  and those who love them for their inherent value, could easily obtain them, and could keep them to look at for a lifetime without injury to others.

3 [302/]  See Appendix, J.

4 [304/*]  Is the fact that these unjust monetary laws have been in force from the earliest ages, and produced in every civilized nation their natural evil effects, any good reason for the continuance of such laws ?  Are evils any less evils because they are sanctioned by the laws of ages ?  On the contrary, do not the evils increase as countries grow older;  and do not the wealth and power become more and more centralized, and the laboring classes more and more impoverished until oppression induces civil wars and the overthrow of governments ?  This has been the experience of nations for ages.  There is now in every civilized nation a continual strife between capital and labor.  Has there ever been a nation in which the wealth has centralized with more rapidity than during the last ten years in this free Republic ?  How can we expect to continue this centralizing power and yet ward off its evil effects ?  Common sense teaches, and experience proves, that like causes produce like effects;  and if we persist in giving to money this unjust centralizing power, it will eventually seal the fate of this nation as it has that of other nations in past ages.  People do not seem to consider that the laws of right existed before human laws were instituted, but seem to take it for granted that the institution of these monetary laws gives existence to justice and truth;  and therefore all men are bound to look upon them with the same awe and submission as if they were founded upon the eternal principles of justice.  But justice and truth are prior to all human laws;  and these monetary laws are in direct opposition to every act of God’s providence, and every just right of man;  and are the most egregious national sin that wall ever organized, or instituted, because the evil extends as far as these monetary laws extend, corrupting all contracts between man and man, and between nation and nation, making the individuals who earn the wealth tributary to those who possess this monetary power;  and even making one nation tributary to another that merely furnishes a representative of the wealth.