How Vermont Can Abolish Usury And Promote A Sustainable Economy

Part 1 of 2

Adrian Kuzminski

During this time of financial and economic crisis, it is worth recalling that credible alternatives to our current financial system exist, if largely unrecognized, and deserve serious consideration. There is a vast, diverse, and largely unread body of literature on monetary questions. Some of this is an underground literature caught up with dubious conspiracy theories, eccentrics and cranks, and unlikely utopian proposals, but some of it is the work of serious, evidence-based, pragmatic thinkers offering plausible alternatives.

One of the latter was the now-neglected 19th-century American proto-populist, Edward Kellogg. Although associated with the Whig Party, he was a kind of godfather to the later populist movement on monetary issues. Perhaps the most profound of American writers on monetary issues, Kellogg advocated a decentralized but nationally regulated monetary system based on non-usurious, low-interest public loans to individuals. His vision inspired 19th-century century mutualists, greenbackers, populists, and others who sought to restructure the monetary system to redistribute wealth.

In our own day, when usurious credit in the form of private finance capital remains the dominant force in economic life, and is largely taken for granted even by educated people, the alternative Kellogg offers is more  important than ever. Indeed, I suggest that Kellogg’s theory of money is the best monetary alternative we have to the baleful system under which we suffer.

Readers of Vermont Commons may wonder how Vermont can abolish usury, why it’s important to do so, and how a “decentralized but nationally regulated monetary system” could function in Vermont — either the independent, sovereign Vermont envisioned by secessionists, or the actual Vermont of today, subject to a largely unaccountable and corrupt federal government. I will return to the role of Vermont in the last part of this essay. Meanwhile, I offer a summary and updating of Kellogg’s work, including an exploration of some of its important aspects and implications. Before we can consider the abolition of usury, we need to understand what it is and what it is not, and we need to understand money.

Edward Kellogg (1790-1858) was a New York City businessman whose losses in the crash of 1837 led him to examine the business cycle, monetary policy, and debt.  In a series of writings, Kellogg developed the idea of redistributing capital not by taking from the rich through taxes and other direct appropriations, but by having the government provide very-low-interest loans to the general public. These loans would have a uniform, fixed interest rate, established by law. They would be issued locally through a system of public credit banks he called the Safety Fund. Once issued, these low-interest loan notes would circulate as currency, replacing the privately issued banking notes of his day (which today take the form of Federal Reserve Notes). Although Kellogg wrote newspaper articles and essays in Horace Greeley’s New York Tribune and elsewhere, [i] and published a book in 1849 entitled Labor and Other Capital, his views are perhaps most fully developed in his posthumous work, A New Monetary System, published in 1861, edited by his daughter, Mary Kellogg Putnam.

In his day Kellogg seems to have influenced even Abraham Lincoln who, according to historian Mark A. Lause, ” . . . had his own copy of Kellogg’s book, Labor and Capital [sic] advocating the government issuance of paper currency as a just means of redistributing wealth, and he corresponded with the author’s son-in-law.” [ii] Kellogg’s public currency was intended to end the monopoly over the discretionary issuance of money at interest, which was held then (and now) by the private banking and investment system. Since capital is available to most of us only by borrowing at varying rates of interest from private creditors, and since creditors are free to charge whatever rates the market will bear, they are in a strong position to command a premium or tribute for their loans in the form of interest. Through payment of this tribute, populists pointed out, wealth is steadily concentrated in the hands of creditors. Kellogg aimed to replace what he called private “usurious” money with public, low-interest money, allowing the general public access to capital on what he believed to be non-usurious terms.

Kellogg proposed to establish local public credit banks, and we might imagine one in each community. These local public credit banks would be part of the Safety Fund. Instead of money being issued (as it is now) through a privatized and centralized money-management system on a top-down basis, primarily as loans at increasing rates of interest from a central bank to major commercial banks, and then to regional and local banks, and then to the public, money in his system would be issued by local federal banks as loans directly to citizens at nominal interest on the basis of their economic prospects. Once lent out, Kellogg’s public credit notes would flow into circulation, providing the basis for a new currency backed by the assets of individual borrowers. These notes would be the only source of money. Kellogg lived in a pre-corporate world, compared to today, and he presumed that flesh-and-blood persons would be the only ones borrowing from public credit banks. Corporations as we know them played a growing but still limited role in his day; he did not imagine, it seems, that they would be able to borrow from the Safety Fund. And although he envisioned only land as collateral for his loans, today we might accept other reliable assets.

It is worth considering Kellogg’s own summary of his system:

“In the plan we are about to propose for the formation of a National Currency by the General Government,” he tells us, “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.” [iii]

Those not willing to hold Safety Fund money they borrowed as cash have the option of lending it back to the Safety Fund.
“The money will bear no interest,” Kellogg goes on to add, just as our cash today bears no interest, “but may always be exchanged for . . . 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 per cent. 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 per cent., and the Safety Fund Notes bearing but one per cent., the difference . . . will induce owners of money to lend to individuals, and thus prevent continual issuing and funding of money by the Institution.” [iv]

A centralized national currency would be replaced, in Kellogg’s system, by a locally issued currency. But that currency would everywhere be subject to common national standards, ensuring that each local public credit bank reliably issued equivalent units of currency. A dollar issued by one local public credit bank of the Safety Fund, Kellogg intended, would be worth the same as, and be freely interchangeable with, one issued by any other. The independence of local branches would be guaranteed by the discretionary power reserved to them as a local monopoly actually to loan money; the compatibility of their monies would be ensured under federal law by fixing the value of the dollar by law at 1.1 percent/year – that is, by lending money everywhere to citizens at that rate.

Kellogg’s system is designed for local control of capital and resources:  “The Safety Fund,” he tells us, “will lend money at a low rate of interest to all applicants furnishing the requisite landed security; hence every town, county, and State, which has the power to perform the necessary labor, can make internal improvements without pledging its property to large cities or to foreign nations to borrow money.” [v]  It is the people in every town, county, and state – those who labor and produce – that Kellogg is talking about, not corporations or governments. The goal is to establish and preserve economic decentralization.
Amounts of money lent in Kellogg’s system would vary considerably from place to place, with some areas needing and creating more currency than others. The solvency of local federal public credit banks would be guaranteed by collateral put up by borrowers, and the money supply would be stabilized by repayment of loans as they came due. The interchangeability of public credit bank notes would ensure a wide circulation for the new money. Kellogg’s Safety Fund system can be understood as a form of free banking, but done as a regulated non-profit public service rather than as an unregulated and unstable private for-profit enterprise.

Interest for replacement, not wealth

The beauty of Kellogg’s system lies in its decentralized but standardized and self-regulating nature. The government’s role is not to run a central bank, or fund a monetary system, but to fix the standard of locally issued money, just as the Bureau of Weights and Measures fixes the standard of the yard or the pound. There would be no central bank, and no need of one.
How would the government fix the value of the dollar? “The worth and amount of the interest on the dollar,” Kellogg tells us, “constitute and determine the value of the dollar. . .   Demand and supply are sometimes said to give value to money; but it would be as reasonable to assert that demand and supply fix the length of the yard, the weight of the pound . . .  Money is valuable in proportion to its power to accumulate value by interest. A dollar which can be loaned for 12 per cent. interest, is worth twice as much as one that can be loaned for but six per cent., just as a railroad stock which will annually bring in twelve per cent., is worth twice as much as one that annually brings in six per cent.” [vi]

A dollar of fixed value thereby would be one with a fixed interest rate. To achieve a stable currency, Kellogg insisted that this rate be fixed by law; perhaps today it would take a constitutional amendment. Living in an era of hard money backed by precious metals, inflation was not a problem for Kellogg. In our era of fiat money and steady inflation, we see the value of money eroding as it loses purchasing power. Kellogg’s monetary system, with money created exclusively by loans on good collateral, automatically precludes the kinds of inflationary abuses we suffer.

Kellogg determined that this fixed interest rate be 1.1 percent. Why 1.1 percent? A one percent rate of interest, we might note, was the limit on interest established by the Council of Nicaea in the fourth century; any rate beyond that was condemned as usurious.

“A rate of interest of even two per cent. per annum,” Kellogg tells us, “would put it out of the power of the people to fulfill their contracts.  The establishment of this rate of interest would be equivalent to the passing of a law, compelling the laboring classes to double the capital of a nation, in favor of capitalists once in thirty-four and a half years, besides producing their own support.   . . . [W]ould not a tribute or tax like this keep us forever in poverty?” [vii]

A 1.1-percent rate, he argues, fairly redistributes capital, and is a sustainable rate of interest – a rate that allows for the replacement of resources over a lifetime while avoiding too little or too much debt.

Kellogg demonstrates the point through homely examples such as the following: If I borrow money at 2 percent to buy a house, I commit myself to replace the value of my house not once, but twice over 34-and-a-half years, for that is how long is takes 2 percent interest on principal to build up to equal the principal itself. I would have to build in that time three houses (the first one, for myself, a second to pay back the principal, and a third to pay back the interest). At 7 percent I would have to replace the value of my house every 10 years, which would be the equivalent of committing myself to building in that time seven houses in addition to the one I build for myself. These additional houses, of course, are not mine to own and enjoy or profit from, but are wealth which I am obliged to create and turn over to my creditors.

If we imagine the economy as a whole operating on money borrowed at these rates, we see why Kellogg thought even a rate as low as 2 percent posed an intolerable burden.  Such a “growth” economy is unsustainable insofar as debtors must repay lenders at rates exceeding the current replacement potential of the economy. Kellogg captures this unsustainability nicely:  “. . . 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.” [viii]

The debtor in Kellogg’s day and ours is compelled to extract, by hook or crook, more resources than he or she otherwise would. Economic “growth” has been accomplished largely by this pressure to exhaust finite resources, particularly fossil fuels, to meet usurious debts. In this time of global resource depletion and large populations, we may have to adopt a steady-state economy more or less as Kellogg suggests, whether we like it or not. Such an economy would be a replacement economy over the course of a lifetime, one which can be financed, according to Kellogg, by a monetary system where interest on debts is fixed at about 1 percent. A 1-percent interest rate turns out to be approximately the rate which allows a population to replace over a lifetime – roughly 70 years, the old Biblical measure – the goods and services it consumes, leaving to posterity not further debt but a material legacy equivalent to that with which it began. If I am lucky enough to borrow money to buy a house and repay it at 1.1 percent, I have in fact 60 years – essentially an adult lifetime – until my interest payments equal the original loan, which is equivalent to paying for a second house in addition to the first. I am, with that interest, in effect replacing the value of the house I use up or consume over a lifetime, after having used the principal to build it in the first place. Similarly, for the economy as a whole. Kellogg’s 1.1- percent interest rate beautifully integrates the natural individual human life cycle with the ecological cycle of replacing what you consume.

Kellogg intended his fixing of the value of money at 1 percent to be a universal law, with no one anywhere allowed to charge more than 1.1 percent for money loaned out. He writes of banks “closing up their business,” but being allowed nonetheless the full value of their assets, insofar as “no injustice will be done to them, for the law making paper money [Safety Fund notes] 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.” [ix]

Kellogg refers here to the specie-backed banks of his day, but his argument applies just as well to the fiat money of Federal Reserve notes in today’s banking system. Capital under his system would become what it is not today: cheaply and widely available at local public credit banks to anyone credit-worthy. Kellogg had a strict standard for collateral; how far that might be adjusted for current conditions, if at all, is an open question. Other questions as well remain, beyond the limits of this essay: Might public credit loans be available to students lacking collateral? Might public credit banks offer 1.1-percent-interest credit cards?  Might homebuyers take out public credit loans instead of traditional mortgages?  Might small business (sole proprietorships and partnerships) take out public credit loans instead of borrowing money from commercial banks? And so on.

Adrian Kuzminski, a research scholar at Hartwick College, is the author of Fixing the System:  A History of Populism, Ancient & Modern.  He can be reached at


1.See for instance a 1841 pamphlet: Edward Kellogg, Remarks Upon Usury and It’s Effects:A National Bank a Remedy, in a Letter, available at:

2.Lause, Mark A.  Young America: Land Labor and the Republican Community, Urbanna: University of Illinois Press, 2009 p. 122

3. Edward Kellogg,  A New Money System: The Only Means of Securing the Respective Rights of Labor and Property and of Protecting the Public From Financial Revolutions, (1861), reprint New York: Burt Franklin, 1970 p. 274

4. Ibid, p. 276

5.Ibid. p. 307

6.Ibid, pp. 61-2

7. Ibid, p. 138

8. Ibid, p. 266

9. Ibid, p.302

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