Thursday, November 12, 2009

How Vermont can Abolish Usury and Promote a Sustainable Society

(Originally published in the Vermont Commons, November, 2009)

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 nineteenth 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, he advocated a decentralized but nationally regulated monetary system based on non-usurious, low-interest public loans to individuals. Kellogg's vision inspired nineteenth 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 the 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. He determined that 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, 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." 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."

Those not willing to hold Safety Fund money they borrowed as cash have the option ot lending it back to the 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."

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 issues 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, according to Kellogg, 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." 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.

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 twelve 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." 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. . . . would not a tribute or tax like this keep us forever in poverty?" The 1.1 percent rate, he argues, is justified not only as fairly redistributative of capital, but as a sustainable rate of interest -- a rate which 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 two 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 two 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 seven percent I would have to replace the value of my house every ten 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 two 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." 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 one percent. A one percent interest rates 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, and similarly for the economy as a whole. Kellogg's 1.1 percent interst 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 one 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." 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.

The profound implications of Kellogg's money system cannot be overstated. There would not only be no controlling central bank in the modern sense, there would be no discretionary central issuance of currency by behind-the-scenes financiers, the government, or anyone else. The banking system would be set on its head. A bottom-up system of capital creation by demand would replace the old top-down system. Most fundamentally, credit would be made available to the general public at a perpetually fixed, stable, and sustainable 1.1 percent interest rate on good collateral, instead of first being made available selectively to large institutions, who in turn lend it at their discretion to others -- all in a usurious spiral benefiting creditors and sophisticated borrowers who can leverage their debts, leaving all others impoverished. With interest eliminated as a factor in monetary policy, the principle engine of wasteful and compulsive economic growth -- the forced repayment of loans in excess of their natural value in production and consumption -- would be eliminated. There would be no need to labor frenetically to overcome the interest burden. Economic investment would be possible on the merits of the situation alone, not on a legal obligation or contract to meet an abnormally forced rate of return. A sustainable economics would become possible, for the first time since the pre-industrial age. And, not least, the widespread availability of capital to individuals (unknown since the closing of the Western frontier in America in 1890) would do much to overcome the vast and growing discrepancies of wealth which exists because of usurious interest rates.

Kellogg, it should be clear by now, envisioned a very different kind of money from that with which we are familiar: ". . . if money were properly instituted and regulated," he tells us, "there would never be such a thing as a money market. There would be a market for the productions of labor; and these would doubtless vary more or less in their market value or price, but there would be no variation in the market value of money. It is as unreasonable for people to gain great wealth by fluctuations in the market value of money as it would be for them to grain great wealth by fluctuations in the length of the yard. Money is as much a standard of value as the yard is of length; and deviations in the market value of money are as much a fraud upon the public as deviations in the length, weight and size of other measures. No matter how long this gross wrong has been practiced upon all nations, it is no less an evil; and it has shown itself to be such by the centralization of wealth in every nation, and the poverty of the people whose labor has produced the wealth." If creditors are allowed, as historically they have been for some centuries now with few exceptions, to raise and lower interest rates more or less freely, they have it in their power to favor some debtors and punish others, and to maximize their own profit by optimizing interest rates at what the money markets will bear: lower rates to stimulate borrowing and the economy, and higher rates to do the opposite. With no social responsibilities entailed by the decisions of lenders and borrowers, greed and fear are easily unleashed to cloud future estimates, leading to booms and busts, as we are now seeing once more today.

Unlike a central bank, Kellogg's Principal Institution would not lend at interest at all, nor would it lend preferentially to some borrowers rather than others; nor would it have any discretionary power to manage the system, apart from enforcing uniform legal standards. Nor would there be any need for fractional or capital reserve lending. The Principal Institution, in short, would have no control over the money supply. Borrowers would be able to defer payment of the principal indefinitely, as long as they paid the interest: ". . . whenever a mortgagor shall have the means, he can pay off any part of the mortgage, and stop the interest. But he will never be compelled to pay the principal as long as the interest shall be regularly paid." Kellogg, as we have noted, proposes that individuals be allowed to purchase public interest bonds from the branches of the Safety Fund at one percent interest, thus providing what he thought in his system would be a safe haven for parking one's money. On the national level, we would no longer find a central bank in the modern sense. "The Safety Fund," Kellogg tells us, "may consist of a Principal Institution with Branches," and "the Principal Institution should issue money only to the Branches . . ." The issuance of currency only to the branches is what would enable the Principal Institution to monitor local practices and enforce the law; it also prohibits it from issuing money to anyone else. A branch found in violation of national monetary standards (perhaps by charging illegal interest rates, refusing loans on good collateral, or otherwise defrauding the public) could be deprived of new currency to issue until reorganized on a sound basis. A local federal credit bank issuing too many bad loans, or refusing loans to otherwise credit-worthy citizens, would presumably be subject to legal penalties, including closure and reorganization. Without such a provision, we would have an unregulated system of anarchic banking. National standards, in addition, would determine for the Safety Fund uniform rules of credit-worthiness, rules of local public management, and other technical matters.

In Kellogg's words: "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." When he says that public credit banks should not be made offices of discount and deposit, he is telling us that they ought not to be in the traditional banking business of making loans on deposit at all, much less on the basis of fractional or capital reserve banking. Kellogg fears much harm not only in the prospect of reserve banking, but of any loans on deposits at all. For this reason he rules out making deposits at public credit banks, and recommends that those who wish to park their money do so by buying Safety Fund bonds at 1 percent. He does not address the need (not so much felt in his day) for simple, demand deposit accounts, in place of the inconvenience of buying bonds, and perhaps Safety Fund branches today could be open after all to such deposits, provided no loans were made on them and that they were simply kept for the safe-keeping of the depositors.

Kellogg's 1.1 percent loans would put capital into people's pockets and encourage, he thought, a personal productivity hitherto unknown. In his words: "In the United States, if interest were reduced to one, or to one and one-tenth per cent., useful productions would probably increase from twenty-five to fifty per cent. The wealth, instead of being accumulated in a few hands, would be distributed among producers. A large proportion of the labor employed in building up cities would be expended in cultivating and beautifying the country. Internal improvements would be made to an extent, and in a perfection unexampled in the history of nations. Agriculture, manufactures, and the arts would flourish in every part of the country. Those who are now non-producers would naturally become producers. The production would be owned by those who performed the labor, because the standard of distribution would nearly conform to the natural rights of man." And further, he adds: ""The per centage income upon capital can only be paid with the proceeds of labor; therefore this reduction of the per centage income would be equivalent to the distribution of several hundred millions of dollars among the producing classes, according to the labor performed. The effect of so large an annual distribution among this class would be to diffuse, in a few years, competence and happiness where now exist only poverty and misery." The new prosperity envisioned by Kellogg is not a function of usurious economic "growth," but rather of the "distribution" of capital widely among the population. The increase in "useful productions" follows from this wide distribution of capital; with capital concentrated in a few hands the same magnitude of production might occur, but only to the benefit of a few, and thus not useful to the many.

Kellogg's model of a decentralized but democratically regulated monetary system is worth pondering not only for financial and economic reasons, but for political ones as well. Democracy is necessarily a decentralized, face-to-face affair, and it cannot be successful unless its citizens personally enjoy relative economic independence in a relatively decentralized economy. Only then can they come together as equals in a free community. Providing capital directly to the people will, over time, reduce economic inequality. Most citizens today, by contrast, are economic dependents, having been forced into debt peonage by usurious interest rates for most of the basics of life (education, housing, transportation, etc.). Not being free economic agents, they cannot oppose the harsh and destructive economic system which oppresses them, nor the policies of those who control it. A key step in making possible greater political freedom is the realization that a decentralized, self-regulating, non-usurious monetary system of the sort outlined by Kellogg and advocated in part by Greenbackers, Populists, the Social Credit movement, and others since the nineteenth century, can provide the basis for widely distributing and conserving wealth, making possible a more sustainable and fulfilling way of life.

Finally, one may be tempted to dismiss Kellogg's ideas as remote, even utopian. Kellogg was no idle dreamer, however, but a practical man who made his own way in the world; he was raised on a farm, largely self-educated, and successful in business. He took the long view and refused to conclude that the practical unlikelihood of ideas otherwise compelling was a fatal disqualification. Let me give him the last word: "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 are 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."

If Vermont were a sovereign state in control of its own destiny and currency, it would be free to establish a national system such as Kellogg's. Such a system would guarantee access by all Vermonters with collateral to capital, that is, credit, on a nominal interest basis. It would create a Vermont currency, facilitate a sustainable economy, and avoid the compulsion to "grow" economically which arises out of the need to repay usurious debts. It would provide not only a medium of exchange, but a responsible way of incurring needed debt for large-scale projects not otherwise fundable -- schools and roads and hospitals on the institutional level, and home ownership, education, and similar needs on a personal level. It is important to understand that local currencies, such as BerkShares or Ithaca Hours, popular among many decentralists and valuble and popular experiments as they are, lack the key ingredient of a mature currency: being made available before rather than after the production of goods and services. They function as a medium of exchange but, not being available in advance of production, they have inadequate capacity as vehicles of future investment. They can only reflect past production, and so are of little help in financing projects we cannot fund out of current cash-flows. They are not a solution to the money question. If local currencies as we know them were the only money available, local economies would be starved for capital and gradually contract. Kellogg's monetary system avoids this fatal flaw. Our privatized, usurious financial system, which leads to debt peonage for most, remains for all its faults a mature system in the sense that it provides credit ahead of production. Kellogg's system does the same, but without the burden of usury.

As long as Vermont remains part of the United States under the current Constitution, however, it is prohibited by Article 1, Sections 8 and 10 from issuing its own currency. There may be a way to get around this. A state-owned public bank could be established, along side the private banks. Operating in US dollars, it would have to depart from some of Kellogg's principles, though not his all-important 1.1 fixed interest rate. It could accept deposits from the state government (tax revenues) and from private individuals and institutions. A precedent is the state-owned Bank of North Dakota -- the only one in the United States. On the basis of its deposits and other capital such a bank could lend to citizens of Vermont at something like Kellogg's 1.1 percent rate. If it used fractional reserve banking on the collateral for its loans, it could lend out amounts considerably beyond the value of the collateral pledged to it. Kellogg disapproved of fractional reserve banking, but it might be necessary for a state bank in competition with private banks. It could also offer depositors a 1 percent rate of interest on their deposits. The Federal Reserve notes being used would remain subject to inflation beyond the control of Vermont. The Bank of Vermont might have to calculate its rates (1.1 percent on loans and 1 percent on deposits) in terms of inflation adjusted dollars. In the event of deflation, a similar calculation could be made. With a conservative collateral reserve ratio, and perhaps other assets, along with a careful assessment of loan worthiness, this State Bank of Vermont could provide low-interest capital to citizens while ensuring a rate on deposits adequate to protect their value, especially from deflationary pressures. This in itself -- breaking the monopoly on credit by private usurious lenders -- might be sufficient to establish a non-usurious financial system. But serious challenges would remain. Vermonters would still have the regular usurious financial system available to them. Some borrowers would be willing to take greater risks in hopes of greater gains through usurious loans, beyond what they could get on collateral through public loans. And some might borrow from the state bank, but leverage the borrowed money through the private banking system. Deposits, after all, would earn more interest in private banks. It would be unfortunate if a low-interest public bank ended up subsidizing the usurious private banking system.

If Vermont can't abolish usury implicitly simply by breaking the private monopoly of usurious finance, it could still do so by explicitly outlawing usury within its borders. Such action appears not to be precluded in the prohibitions on the powers of the states listed in Article 1, Section 10 of the Constitution; and Article X of the Bill of Rights suggests it is in the power of the states: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or the people." If usury were abolished by law in Vermont, depositors and investors would still have the option of going outside the state, and no doubt many would. But Vermont investors free to get usurious terms outside the state would bring that income back into Vermont, spending at least some of it at home. Vermonters would be, like the Israelites of the Old Testament, free in this approach to accept usurious income from outside, but prohibited from charging it of one another. Under these conditions, if no other banks or institutions or anyone else in the state could offer interest inside the state at more than the same low, fixed rate of 1.1 percent, a significant, state-wide, usury-free zone would be created, perhaps one sufficient to foster a viable low-interest, public credit economy, particularly among local producers. The implications of abolishing usury are far-reaching, and there will be unintended consequences and important details to consider beyond the scope of this essay, but here is a path very much worth exploring. By abolishing usury, Vermont would take a powerful step towards exercising its sovereigny within constitutional bounds. It may not be political secession, but it may well be something just as important: economic secession.


See, for instance, an 1841 pamphlet: Edward Kellogg, Remarks Upon Usury and Its Effects: A National Bank a Remedy, in a Letter, &c., available at:
Lause, Mark A., Young America: Land, Labor, and the Republican Community, Urbana: University of Illinois Press, 2005, p. 122
Edward Kellogg, A New Monetary System: The only Means of Securing the Respective Rights of Labor and Property and of Protecting the Public from Financial Revulsions, [1861], reprint New York: Burt Franklin, 1970, p. 274
Ibid., p. 276
Ibid., p. 307
Ibid., pp. 61-2
Ibid., p. 138
Ibid., p. 266
Ibid., p. 302
Ibid., p. 230
Ibid., p. 279
Ibid, p. 286
Ibid., p. 289
Ibid., pp. 184-5
Ibid., p. 192
I explore the fundamental relationship between economic democracy and political democracy in my book, Fixing the System: A History of Populism, Ancient & Modern (Continuum Books, 2008)
Kellogg., New Monetary System, p. 306
On the Bank of North Dakota, see:
On the Biblical prohibition, see Deuteronomy 23, verses 19-20.

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