Jacek Andrzej Rossakiewicz









NEW FINANCIAL
ARCHITECTURE 







Introduction

Among the numerous newspaper articles covering current financial crisis,

one of the most promising is an article by Paul Krugman published on
second of September 2009, in the New York Times entitled How did
economists get it so wrong? In the article, Paul Krugman, 2008 Nobel Prize
Laureate in Economics, wonders on the reason for lack of orientation in
macroeconomics among economists of dominant neo-liberal trend. This lack
of orientation allowed many successful and influential academic economists,
most of whom occupied a number of important economic and finance
positions (at the head of the U.S. Federal Reserve Fund), to have great
optimism, which they had almost until the day of announcement of the
current crisis. Krugman examines the minds of economists of neo-liberal as
well as neo-Keynesian school and contrasts them, in the field of
macroeconomics, with the theoretical achievements of John Maynard
Keynes himself. He does so emphatically, contrary to widespread albeit false
opinion that the theories of Keynes were "fairy tale".
In Krugman’s attitude one can feel what is most important to an economist,
as indeed to any other researcher, scientist or intellectual, namely the sense
of responsibility for the scientific field practiced. According to the well-
known definition: the elite are people who feel responsible for others - and
Krugman belongs - certainly – to such formulated elite.
Similar statements – aimed at changing attitude towards Keynes’
achievements – were formulated by another Nobel Prize winner in
economics, Joseph Stiglitz, although he did not do it emphatically as
Krugman. Even the former head of the U.S. Federal Reserve, Alan
Greenspan, admitted, in a diplomatically balanced wording, his doubts
concerning liberal orthodoxy, saying: I made a mistake, assuming that
organizations whose goal is to make profits will be most capable to protect
their shareholder's equity.
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Paul Krugman contemplations are valuable due to attempt at explaining
causes of the adverse phenomenon of economics as a science. Krugman
would have liked to restore the authority, which professional and academic
economics should enjoy. Appreciating the achievements of Keynes,
Krugman, however, does not take note of his creative inspirations, instead
being contented with the well-known motivate of John M. Keynes' in writing
General Theory of Employment, Interest and Money, (1936), which was to
remedy the Great Depression of the 1930s. That crisis demanded a new
approach to economic problems as well as interventions and Keynes
formulated an active plan that was competent and well adapted to the times.
The broad economic perspective, which Keynes had covered the entire
history of economic thought - from the ancient times to mercantilism - and
was not dominated by a relatively modern arguments of Adam Smith and his
successors, which was and is remains a disgraceful standard in liberalism
and neoliberalism. In addition, Keynes conversant with the works of
economic theorists the twentieth century citizenship economics: Silvio
Gesell' and Clifford Hough Douglas, which he analyzed and which over time
become an important source of his inspiration. I am thinking here, in
particular, of the achievements of the German thinker and economist, Silvio
Gesell'a, discussed in the General Theory .... Keynes, appreciating the ideas
of Gesell (much more than the Douglas), did not accept his solutions without
criticism, but instead inclined towards objectives that he had formulated. As
an example, I would cite the example of postulate of creation of capital
according to the needs of the society and its economy, which would entail
the possibility and desirability of liquidation of positive interest on capital.
Keynes perceived this possibility as a long-term process of intergenerational
changes and called it, concisely and neatly, "rentier euthanasia." In the last
chapter of the General Theory ... he wrote:
Today, percentage does not reward any significant sacrifice, just as the land
rent. The owner of capital receives a percentage of capital because the
amount of capital is insufficient, as the landowner receives a rent because
the amount of land is insufficient. But, while there may be natural reasons
for insufficient land, there are no natural reasons for lack of capital. [...]
For this reason, I consider rentier capitalism as a transitional phase, which
will disappear after fulfilling its task. [...]
Therefore, in practice it is possible to proceed towards such an accumulation
of capital (and there is nothing here that is impossible to achieve), so that its
amount ceased to be insufficient, so that an investor who is not engaged in
production will no longer receive any premium.

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So wrote John Maynard Keynes in 1936 and wondered whose interests and
ideas would prevail in the perspective. Keynes placed his hope in equitable
ideas and rejected the pessimism emanating from observation of dominant
role of vested privileges. All the time, however, the richest contemporary
stockholders (financial oligarchy) are still immensely increasing their
profits, ensuring that the ideas of Keynes, Gesell and Douglas are not
accessible to the young and that economic and social awareness of the new
generations remained closed in the world of neoliberal "classic" fiction,
known as economic deregulation.

The orthodox followers of neo-liberalism have criticized Krugman’s article

that constitute an insignificant breakthrough in the deregulatory theory. In
Poland, this was done by professor Stanislaw Gomulka, accusing Krugman
of "ignoring important phenomena". Stanislaw Gomulka's objection might
have been considered legitimate, since it is obvious that Krugman omits
certain phenomena (which is typical for a newspaper article). Unfortunately,
Gomulka ignores significantly more important phenomena and, also, fails to
mention the basic flaws of liberal economy, being simply ignorant of them.
Hence, in his mouth, the accusation brought against Krugman is simply
irrelevant.
A full series of articles or extensive book would be needed to shed more
light on the situation prevailing in modern economy and to correct blatant
errors or even cynical deceptions contained in liberalism. This is a serious
challenge whose significance can hardly be overestimated and in addition
the social benefits from its fulfillment can be huge. Let us, therefore, begin
this work from the subject of issuing money, which in liberalism has been
made a taboo subject - and which after battling Keynes's theory, has returned
to the rank of a taboo in neoliberalism - and which determines the "classical"
interest based economics in radical and negative way.
However, civil economics emerged some hundred years ago in the work
of Sylvia Gesell Natural Economic Order (1916) as an antidote to the
financial deception of willfully interest based liberalism and today, thanks to
the work of many people, presents a much higher scientific potential than the
academic economics under the heading of neo-liberal deregulation. Hence a
time has finally arrived to spread the idea of civic economy in economics in
order for the anti-social, economic fiction created for the defense of vested
interests of the financial oligarchy to cease to destabilize the lives of nations
and societies.

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PART ONE

PRINCIPLE OF THE MONEY ISSUE



Historical determinants.
John Locke (1632-1704) created the fundamentals of the quantitative theory
of money. He stated that the price level is directly proportion to the quantity
of money, while defining the latter he took into account such factors as «the
speed of the circulation» " [1]. Locke's theory is the basic theory of
monetarism that reflects two characteristic variables: amount of money
compared to quantity of goods on the market and possibility of repeated use
of money in a considered unit of time e.g. during one year. Locke's theory
constituted a correct reflection of the basic relationship between the
economy and money, economics and finance.
After some hundred years later, in 1810, David Ricardo (1772-1823) put
John Locke's theory into a mathematical equation, in the form of MV = PT,
where M is the total amount of money in the society, V - average turnover
rate, P - price and T - number of goods on the market. In stead of solving
Locke’s theory, of which its algebraic form was helpful, Ricardo behaved
differently; he limited the interpretation of the equation to claim that when
production (T) and the coefficient (V) are kept constant, any additional
amount of money (M) leads to an increase in prices (P), which can be
written in the form of the equation: (ΔM)V=(ΔP)T, where Δ is the
increment. This is Ricardo’ equation arising from John Locke
considerations. Limiting Locke’s general, universal theory to one particular
case was distortion of the theory as well as missing the opportunity for
continuation of uncovering economic and financial dependence.
In the context of Locke’s considerations Ricardo did not mention, among
others, on what should be done when there is an increase in production:
(ΔT), that is increase in the quantity of goods: goods and services on the
market, which is a common phenomenon and which runs parallel with
technological progress and growth in population. In considering this case, it
would have been proper to infer from Locke’s theory fundamental and
reasonable equation of emission: ΔM=(ΔT)P/V. Increase in the quantity of
goods would monetized in a proportion corresponding to observed

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(calculated) turnover ratio: V=PT/M. The prices could remain unchanged
and a proportional monetization would facilitate a proportionate increase in
demand and would enable the manufacturers to achieve a return on
production costs and reasonable profit from sale of goods. While it would
help the whole community in monetization of its work outputs (i.e.
monetization of value added), this would lead to better meeting of the needs
and harmonious development; adequate to the work input.
Here the term monetization implies expressing the value of goods in
money and the process of emission of money intended for distribution in
society. Such a principle of emission is based on economy parity [2].

During the time of Ricardo (and more precisely as early as 1694), paper
money was already in existence in England and with its emergence
economists saw a chance for economy development and better servicing of
the needs of the population. A lot of concepts on the popularizing of money
appeared; from simple principle of printing needed bank notes, to
bimetallism, that is silver and gold parity, and after rejecting of bimetallism
– doctrine of real bills of exchange [3], covered by consumer goods, thereby
supporting very the small amount of money based on gold parity. The
doctrine of real bills of exchange brought money closer to economy realities.
However, all these theories were rejected in favor of Ricardo's Gold Bullion
Standard [4] doctrine – making the quantity of money dependent on the
amount of gold bullions. It was the worst of all possible solutions, handing
the power of issuing of money to the in the hands of the most powerful
bankers. Even the issuing of money was no longer backed by gold coins.
This excluded majority of the population, for whom gold bullion was too
expensive, from emissions and convertibility.
Ricardo developed a theory of justifying the handing over of financial power
to the bankers. In addition to the assumption that the emission of banknotes
should depend on the quantity of gold bullions, he also formulated in other
indicators, which were used to adapt five principles:
1. every activity is to be based on balance of costs,
2. government operations are to be financed by taxes,
3. any settling of accounts should be conducted through banks,
4. issuance of money should also be conducted through banks,
5. any loan is accompanied by interest [5].
Adoption of these five rules allowed private banks to take control of the
finances of the state and even acquire financial power over the society.
Issuing of money was replaced by interest-earning loans fully controlled by

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the banks. Such activities led to the acquisition of real political power over
the society.

To this day the rules formulated by David Ricardo determine the financial
situation of societies of Western civilization. First and foremost, it is a
principle of failure to issue full-valued money, based on economy parity. In
the „western” civilization, on country or any other socially controlled entity
monetize the growth of goods. The principle of issue of money, despite its
fundamental importance in the economy, is ridiculed in this study resulting
in turning of the economy in the economic and financial ideology advocating
for existence of a country’s need to borrow and promoted by the financial
oligarchy for the promotion and justification of the alleged " loan potential"
Implementation of the basic assumptions on failure of the government to
issue money determines the fulfillment of the other Ricardo’s five principles.
Failure to issue full value money, whose right of the existence arises from
economic parity, forces the operations of the government to be supported by
money coming from taxes on the population. There is then need for balance
of costs and drafting of budget Act. The proceeds to the budget are
dependent on the amounts of taxes, duties, and balance of trade with foreign
countries, and when they prove to be insufficient, a so-called public debt is
drawn.
Acceptance of the principle of obtaining money by a country only from
its own citizens or other countries does not solve the problem of issuing
money in proportion to the increase of goods. Instead of emissions
(monetization) rivalry and competition, aggressive forms of trade, economic
or military expansions are introduced. This leads to the realization of
injustice on a grand scale; to imperialism and colonialism – some states are
developing at the expense of other countries. While inside the country it
would lead to favoring the strongest and most ruthless social groups, usually
bankers, owners of corporations, political and administrative bureaucracy -
at the expense of working people: the owners of small and medium scale
enterprises and workers.
Failure to issue money/monetize growth in goods leads to an increase in
budget deficit; since in the balance all social costs connected with the
production, ranging from education through to health service are taken into
consideration but the cost of production is not taken into consideration,
avoiding monetization of effects of social work and counting of this amount
into the budget as a social profit. Collecting and calculating taxes on that
profit does not constitute issuing of money. This is just redistribution of
income, taking money from one group of people in order to finance another

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group or assign the money for other purposes. It is an operation that does not
change the quantity of money in the national economy - this is not an
emission of money that reflects the level of economic growth, if it occurs. In
the current concept of balance and national budget, profit from social work
(value added) is not visualized, although it forms the basis of GDP.


No company would be counted as profitable, if only the costs were entered
into the accounting books while the profits were omitted. Such a practice
would be treated as a crime - in the meantime it is considered normal in case
of a government. In fact this is the result of lack of awareness or the result of
cynicism, ignorance of the principle of emission or deliberate hiding them.
Whatever the reasons for this state of affairs and human motivation this is an
erroneous practice, which leads to faulty method of calculating balance and
determining the budget. Failure to monetize growth of assets is a
fundamental defect of the procedure of drafting a budget.
The second flaw, resulting from the first, is the concept of the budget
closed to any sudden or periodic increase in assets, which thus is not
reflected in the budget. The third flaw is related to time of setting the budget
Act. Instead of calculating it in an ongoing basis, according to real
production and real needs, the budget is drawn in June of a given year for
the entire coming year. Such a procedure in advance dooms the budget to
lack of accuracy and underestimation. At present, due to great advancement
in IT technology, it is quite easy to draw quarterly budget – but, above all,
with the inclusion in it of amounts resulting from issuing/monetization of
increase in assets. The adoption of such a procedure would limit or even
eliminate budget deficit. Work and production effort generates wealth – this
is value added, which is of crucial significance to balance and the budget.
It is only after changes in the way of calculating the budget and after
reflecting this in the procedure for issuing of money that it is possible to
accurately assess the "government’s borrowing needs." Without this,
estimate of these needs is suspended in a vacuum - or more accurately,
exposed to speculative activities motivated by human greed. Moreover,
before elected representatives of the society decide on drawing a public debt
to cover the actual deficit, they should consider whether it would not be
better for the economy and society to cover it through additional printing of
money. Quite often, additional emissions (performed above the level
resulting from the indicators of calculated economic parity) are a lesser evil
than interest based loan.
Emission provides the society with means of settlement. Under
conditions of genuine market economy, when economic initiative is not

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blocked, emission increases effective demand, which can cause inflation,
however, when the printed amount eventually fall in the hands of
entrepreneurs it could be allocated to investment, (obviously there is no such
guarantee, but this results from positive attributes of entrepreneurs). The
effect of such seemingly excessive emission can ultimately be beneficial – in
stimulating development - (in this particular case, Adam Smith's theory
could prove true).
In the case of interest-based loan quite the opposite takes place.
Covering of deficit through loan (public debt usually contracted through a
bond issue) often only postpones adverse phenomenon. Deficit returns with
the extra need repayment of debt with interest, which is detriment of balance
and the budget; there is need for more and more money. "A government’s
loan needs," taken literally and literally as incurring public debt fuels a spiral
of debt, which is difficult to replace it with printing of money later. Printing
of money as monetization of accumulated debt, which is carried out too late,
usually leads to hyperinflation. In this case the better solution is to cancel the
debts, (although this requires drafting new financial relations with creditors).
Thus it is far better in advance to cover the deficit by printing, than allow
debts to accumulate. The concept of „loan needs of the government" is better
to replace it with duty of emission by the government. In times of peace the
following often holds true;

Government loan needs = government duty to print

The aim of a loan is also of importance. Public debt can be internal

(domestic) or external (foreign). At times the loans are actually needed, for
example, to finance purchase of new technology not found in the country.
External debts, due to such reasons, are at times necessary or hard to avoid.
By contrast, internal debt drawn to pay for services or to buy goods
available within the country is unfounded and may be replaced by emission.
Internal public debt is a strange (sic!) financial structure, which in principle
should not exist. It is usually squandering of public money, because when
the taxpayers pay off the debt to a group of citizens, they pay an amount
greater than the cost of additional printing or cost of any (eventual) inflation
resulting from it. Existence of internal debt is a proof of absence of social
solidarity and financial misuses carried out by the most powerful social
groups.
Generally, it is always better to print money than to incur debt. The duty
to print should always take precedence over 'borrowing needs". Resigning
from printing money as monetization of assets or reducing printing to

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"monetization of debt" is an mistake of economists and financial experts -
assuming that they had positive motivation, (I do not want to resolve
whether it is a mistake or cynicism).
Printing of money can effectively prevented incurring of debts. For this
reason, bankers, caring about their vested interests, have always sought to
eliminate the concept of emissions of money from economic solutions and
replacing it with promoting loans and issuance of debt securities such as
bonds. Today the word emission is significantly more frequently used to
define emission of bonds rather than money. On the basis of the bond, that
is, obligation to timely pay (usually unnecessarily drawn) debt, the bankers
issue money and, precisely by this way, take over ownership of public
products of work. (This will be explained in the second part of the article).
In addition to the Ricardian principle of gold parity in bullions, Say’s
Law (Jean-Baptiste Say, 1767-1832), which still has fervent supporters,
according to which the supply creates its own demand, has helped in the
spreading of the dominance of private banks for the last two hundred years.
This law is well satisfied in the realities of barter trade, but it does not work
in commodity-money economy; in the absence of emission/monetization,
both in gold parity system, as well as in the debt banking system, based on
interest-bearing loans.
A population growth (increase in population) as well as economy growth
(an increasing number of goods and services on the market) require
increasing the amount of means of payment – in the same way as tickets for
films at the cinema, in case of increase in the number of seats for the
audience or number of films shown - and the banking system has found its
own, original way, which brings it immeasurable benefits. As early as the
Middle Ages, the loans were associated with informal emission of means of
settlement, carried out by goldsmiths and later by the bankers without the
knowledge of the society. These activities are at present referred to as
commercial bank money creation. These can be compared them to the
operations of the so-called. "Touts" selling legal tickets at much higher
prices, in this case the government bonds issued instead of money - or
simply distributing their own fake tickets, using the free seats in the cinema,
left out for the „touts” by the cinema management, who consciously
"forgets" to fulfill its obligation of printing tickets in an amount
corresponding to the number of seats. (This metaphorical description elides
to the coefficient V, but it clearly shows defects of substitute emission of
bonds as well as emission of insufficient money or lack of it).
In the historic part of this article we have to explain (remind), what is a
bank money creation and what does it consist of. The prototype bank money

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creation was the issuing of written, paper certificates of gold deposits held
by the medieval goldsmiths. These certificates, which were at beginning
were personal (XII century) and later to bearer (fifteenth century), were
issued to customers who had deposited their bullion reserves at the
goldsmith treasury. These paper certificates helped people make transactions
without a gold. The transactions were based on trust for the goldsmith. When
the goldsmiths realized that their certificates are honored by the people, that
people accepted them, trusted them and most importantly, did not
immediately take back the gold, on which the certificates were based, they
could issue certificates, which exceeded the actual value of the gold
deposits. Therefore, Some certificates were false. With help of these
certificates (true and false), goldsmiths conducted their business, issued
loans, and collected interest on the loans. In order to maximize profits,
goldsmiths began to issue more and more false certificates; significantly
exceeding the gold reserves accumulated by them. With time, the held
resource bullions in comparison to the total value of "deposit" certificates:
was like 1:10. In order to insure themselves against insolvency, goldsmiths
and bankers concluded agreements among themselves about possible
assistance. This was the prototype of today’s existing Bank Guarantee Fund
(BGF).

In 1911, after another hundred years from the time of Ricardo (and
previously Locke), Irving Fisher (1867-1947) changed the John Locke's (and
David Ricardo’s) classical equation to the form: MV + M'V'= PT, M'
represent the amount of loan (debt) money created by the bank, and V' is the
size of turnover of [6]. This equation took into consideration the bank money
creation. As opposed to the full value money (M), the Bank debt money (M
'), which does not have to be repaid, was fully controlled by the banks,
firstly in relation to its quantity, secondly its destination (as to purposes and
people), thirdly: interest rate. The largest private bankers, controlling
pseudo-national issuing banks (such as the Bank of England, the Fed -
Federal Reserve System), by issuing or failure to issue loans, by shaping
interest rates and level of reserve requirements decided on the amount of this
money – being a debt. Since bank money had no gold bullion limitations, it
would be multiplied as needed; binding emission (creation) with issuing of
loan credit. It is no wonder that debt money (M') replaced the old, full-value
bullion money (M). Today, debt money M' dominates almost all over the
world. Its domination covers finances, economy and applied economics, but
also education. This is reflected in the removal of original Fisher equation:
MV + M'V '= PT from the economic theory, and academic syllabuses as too

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true; pointing to the possibility of the existence of some other (state, national
or social) money outside of the private bank interest-bearing debt (M').
Currently, the classical equation of Locke and Ricardo MV = PT is called the
Fisher equation, and the symbol M contained in this equation is associated
with the interest-bearing bank money M '.

John Maynard Keynes wrote: At the core of Ricardo's system, on which

the theory of economics was for more than a century based, is the
thought that the problem of the function of aggregate demand can be
successfully ignored. In vain Malthus had vehemently opposed Ricardo’s
doctrine that it was impossible for effective demand to be deficient. For,
since Malthus was unable to explain clearly (apart from an appeal to the
facts of common observation) how and why effective demand could be
deficient or excessive, he failed to furnish an alternative construction;
and Ricardo conquered England as completely as the Holy Inquisition
conquered Spain. Not only was his theory accepted by the city, by
statesmen and by the academic world but, what is more, all
controversies on the topic ceased. The problem ceased to be a subject of
discussion – it simply vanished without a trace. The great puzzle of
Effective Demand with which Malthus had wrestled vanished from
economic literature. You will not find it mentioned even once in the
whole works of Marshall, Edgeworth and Professor Pigou, from whose
hands the classical theory has received its most ideal embodiment. It
could only live on furtively, below the surface, in the underworlds of
Karl Marx, Silvio Gesell or Major Douglas” (...) the completeness of the
Ricardian victory is something of a curiosity and a mystery. It must have
been due to a complex of suit abilities in the doctrine to the environment
into which it was projected – the fact that it reached at conclusions quite
different from what the ordinary uninstructed person would expect,
added, I suppose, to its intellectual prestige. That its practical teaching
was difficult and often harsh, lent it virtue. That it would be adapted to
put together a vast and consistent logical superstructure, gave it charm.
That it could present much social injustice and apparent cruelty as
inevitable scenes in the path of development, and any attempt to change
such state of affairs more like to be harmful than beneficial, won it the
favors of the authorities. That it afforded a measure of justification to the
free activities of the individual capitalist attracted the support of the elite
social force behind the authorities [7].





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 This is conclusion by Keynes summaries Ricardo’s theory well. We should
remember that today (after an effective rejection of proposals to issue money
by the government - together with combating the principle of intervention),
the five principles of Ricardo are still in operation, and continues to
adversely determines our daily situation.
The practice of creation of new means of settlement by the goldsmiths
and new means of payment by private banks, in essence are one and the
same. The goldsmiths issued paper gold, today, bankers, by making money
transfers and issuing credit cards issue money (paying with plastic) in place
of printed national banknote, which in Poland the Central Bank of Poland
has a constitutional monopoly to issue. Both types of these private means of
payment have always been substitute for real accepted money, formerly in
bullions, at present printed in the form of national banknotes. This substitute
was and remains convertible to full-value money, for example, to cash and
back, but it has its own specific features distinguishing it from real money.
This money is debt money, incurred through a loan. It is pseudo loan,
because this money is created to service the loan and does not deplete
reserves of the bank having the privilege to issue (e.g. Bank of England or
FED), however, it may lead to losses or bankruptcy of a private bank which
does not have the privilege to issue (smaller private banks in west). Creation
and issuance constitutes a similar procedure as bringing into existence of
new means of settlement. However, the principle on which means of
payment are created as well as who and for which aim does he issue or
create is important. Full value money arises as a recognized, legitimate
means of settlement for conducting exchange transactions in society; it is not
debt, but proof of useful work carried out that is beneficial for other people,
it is also interest bearing. Ownership of this money arises from work or
fulfillment of legitimate legal benefits (e.g. pension payments). Substitute
money is different from full value money in that it arises as a (interest-
bearing) debt, it is introduced, by stealth, through bribery or fraud, although
usually they later legalized by the law. Arbitrarily issued debt money, from
the money of creation, is burdened with dual ownership right.

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 Firstly: ownership of property applies to the producer of loaned
products. This is justifiable and constitutes a reasonable remuneration for
work and its effects: the increase in wealth.
Secondly, the present ownership right also applies to the person creating
debt money. This is not justified. It constitutes an act of usurpation, and is a
pseudo ownership right constituting a duplication of the real ownership right
described in point one above.
This second feature of bank money (M') has not been subjected to
careful study, and this is a crucial issue accompanying the creation of money
by private banks. It will be analyzed in the second chapter of the present
article.

Present-day method of issuing ("Creating") of money



The original Fisher equation has disappeared from the pages of economic
books. In students economic textbooks, the equation has been replaced by
Locke-Ricardo equation: MV = PT. By rearranging the equation we obtain
an equation in the form; M = PT/V that familiar in the theory of economic,
though it is written differently: M=(1/V)Py, and is called "the demand for
money." However, in liberal theory, it has lost its rightful function; it is not
considered as a justification and basis for issuing of money.
To understand the principles and effects of the present-day method of issuing
of legal tenders one should consider the accurate Irving Fisher equation and
expand it.
In the equation MV + M'V '= PT, one must take not consider the bank’s
creation of interest-bearing money in the form of loan debts (M') alone, but
should also show the dual nature of ownership of this money. We must take
into account bank’s interest rates (r) on loans and deposits, and it is worth
breaking the product PT into two components:
– Durable goods found outside the market, being the subject of inheritance
from achievements of generations and not falling within current
monetization system. These goods were often subject of monetization
using commodity money, although this is not an iron rule. The symbol E
(from the word estate) is used to specify this property. Thus, E represents
public assets; mainly real estate and part of the means of production.
– Current production, consumption and their accompanying non-productive
expenditures (e.g. education, health service, fire fighting etc.), this would
then be the GDP (gross domestic product) usually calculated for one year.
Description of the other elements of the equation:

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 M – Cash money in circulation
M' – interest-bearing debt money created by commercial banks when
lending. The first form of dual nature of debt money; credit monetization
of goods and services produced and rendered by the public. This money
is created in the accounts of sellers of loaned goods and is paid to
businesses to which they have property right. This money arising as a
bank deposit, but may be paid out from the bank. To encourage the
owners to leave their money in the bank, they are offered interest on
deposits as well as annual calculation of compound interest (interest on
interest) as a practice of monetization of interest: rdn, where n is the
number of years of accrued interest (the coefficient n has not been taken
into consideration in this equation).
We leave the symbol M’ in the new equation to signify money created by
the banks and its legitimate property right to which the producers of
loaned goods are entitled.

M'' – This is a new symbol associated bank creation of means of settlement,

it is interest-bearing debt of the borrower (private individual or company), it
is not money, but is expressed in terms of money. The second form of the
dual nature of money lending; borrower lien. The symbol M'' applies to
duplication of ownership rights to loaned goods and services: manufactured
and rendered by the public. This debt bears interest and the monetized
interest rcn, also appears here and has considerable significant, enormously
increasing the size of the debt over time.

rd – interest rate for the deposits on the purpose of the deposits: See
monetary aggregates (positive value),

rc – interest rate on loans (positive value), but usually: rc > rd

Interest rates on loans is the main cause of inflation and rising cost of living,
since the price of loan (interest) is added to the prices of goods and services.
On average 30% prices are capital costs.
V – turnover rate of cash money in circulation within the country. Relates to
national or socialized money, where it still exists (statistical unit).
V' – turnover rate of deposits that is funds from bank creation (statistical
unit). This ratio is usually equal to or close to one and as such may be
omitted in the equation. Deposit increases as a result of interest rate (rc) and
not as a result of circulation. (Turnover is associated with payment or

!14
transfer of deposit). In this case, the more important thing is the calculation
of interest (and compound interest), paid to the holder of amounts M ', from
amounts of repaid interest on loans: M''.

V'' – turnover ratio of debt instruments originating from bank creation; and
from purchase of bonds. They are not money but are sums expressed in
interest-bearing amount. The coefficient V'' has a tremendous value; a hectic
trading in debt securities, government bonds, company shares, a turnover
resulting from pursue of maximum profit or desire to avoid losses. Amounts
arising from this turnover rarely translate directly to the economy sphere, but
when they translate their impact is usually negative and consist of
acquisition of property rights on profits earned by other people. Exchange of
the lien property right for cash is a difficult and sometimes mathematically
impossible operation, since the principle plus the calculated interest is
greater than the sum of money issued (or created) in the society. Liabilities
arising from interest-bearing lien are usually paid from inherited assets E
such as mortgages (in the case of individual borrowers), or from taxes from
the public (in the case of bonds and creation of public debt). In this way the
creators and participants of interest-bearing debt money pauperize the
society and at times looting the national wealth (as in the case of the
procedure of foreclosure introduced during crisis in the U.S., that is taking
over homes indebted families).

Ob – bonds, issuing of interest-bearing securities by the government in

order to raise money: path to meet the so-called "borrowing needs of the
government" and creation of public debt.

Dp – public debt increased by interest.

After making necessary changes the old Fisher equation assumes a new
form:

E+MV+M'(1+rd)V'+Ob= PKB+M''(1+rc) V''+Dp

Here, therefore, is an equation showing present economic and monetary

condition.
The left side of the equation represents fixed assets, including
accumulated assets (E), full-value money (M) and trade in this money (V).
The money M' also appears here - money created by bank during loan
creation, on the basis of monetization of manufactured goods. This money is
the property of producers of useful goods and feeds the economy through

!15
payment of salaries, consumption of entrepreneurs and workers, which helps
turnover V. M' money is often paid from the bank and enters into circulation
along with money M. M money and M' (from the new equation) is full-value
money, which we does not have to be repaid, despite it being created by the
bankers. It constitutes monetization of production of: goods and services
when received as payment for goods or services (work) and not as a profit
from interest on lien amount M''. Over time, the bank money M' replaces the
national currency M. This is a basic principle of financial practice of bankers
of Western civilization, by which they obtain monopoly on creation of
means of settlement and real political power in a given country. A
government that gives right to issue money to the bank and needs money
(because amount received from taxes is not sufficient), has to issue bonds or
draw loans, which has been marked with Ob.
The right side of the equation is the effect of organizing of economic life
by the means described on the left. Here, we primarily have gross domestic
product – considered as the sum of; the useful ones helping to build
community and society and the negative ones that are, however, tolerated by
the public, consumption of alcohol, tobacco, gambling, etc
The second component on the right side is the debt. Social acquiescence
for the bank creation of means of settlement (in the absence of full
awareness of its features) and bank monopoly in the creation of interest-
bearing debt money results in "production of debt" for the population
parallel to production taken into consideration in GDP. The amount of debt
(M'') grows according to a fixed interest rate and their repayment depends on
the quantity of money M and M '. In the case of bank monopoly money,
when we have only M', the difference resulting from difference in interest
rates rc > rd may be covered only with previously accumulated assets (E).
Even if money M' was as evenly distributed among borrowers, some of
them would go bankrupt for lack of enough money to service debt
obligations M''. However, in reality, the money M' and debt obligation M''
apply to entirely different people while there is a relentless struggle in the
society to obtain M' (or M) in order to repay debts. The fight, in which,
regardless of the conditions, someone would have to lose owing to the
mathematical relationships. As a result, the debt of private individuals,
where it has to be repaid, must be partly covered by takeover of previously
accumulated wealth by way of warrant of enforcement or through
declaration of bankruptcy. However, the public debt Dp burdens all taxpayers
and their heirs. This is a systemic defect of the system based on bank debt
issue. A significant financial and intellectual effort is engaged in order to
present this feature of the current financial system as a necessary and normal

!16
feature, albeit unfortunately painful. The actions of the proponents of debt-
money system cover a wide spectrum: from promotion of ideas and "works"
of naive or cynical economists through control of education system and
allocation of degrees as well as nominated for recognized awards - and
ending with the conspiracy of silence against different theories and
discrediting their authors, and ultimately physical elimination of political
and ideological opponents.

The greatest difficulty in understanding the nature of the modern

banking system is no criterion for understanding the nature of the modern
banking system if the lack of distinguishing criterion as to which is genuine
loan and which a creation of new money – such assessment can only be done
summarily by comparing the bank’s initial money resources (M), with the
amount of issued loans (M ') minus cash proceeds (M). Real relationships
taken logically are, in this particular case, quantitative relationships. The true
loan from the bank capital or deposits M this is not creation by an authentic
financial brokerage, which is readily exhibited by bankers - but it usually
does not exist because the M-money is rapidly displaced from the market
and constitutes a margins of the resources of a private bank (usually located
as a reserve account at the central bank). Loan of created loan amount M 'is
universal, but the bank must take into account the need to withdraw cash M
upon request of the borrower, which turns the creation into genuine loan.
Therefore, in order to estimate the size of money creation and genuine issue
of loan, the aggregate amount of payment in cash M compared to the size of
created loan action M' should be precisely calculated. Every loan examined
by unit could then by assigned a probability of being either an effect of a
creation and loan. The maximum discrepancy between creation and
authentic loan is defined by the central bank through publishing the so-called
reserve ration. Currently in the Western world, including Poland, the
officially limit is 3%, i.e. the ratio of creation to the loan can be 33:1. The
Bank would then have the right to request a refund only part of the loan,
which may constitute, according to statistical estimates, a loan and not the
total loan amount, as if the creation of money in the bank never took place
and we always were dealing with genuine loan. The practice of the bank,
which always demand repayment of the whole amount of loan plus interest
is adapted to financial fictions of this second interpretation, according to
which "the bank lends money exclusively from deposits" and does not create
money. In the light of the just described real relationships the real loan (loan
from deposits) is only part of the total amount, for example: the extreme
1/33 (then is only 3%) or other such commonly provided 1/10 (10%), the

!17
second part of the loan is creation of new means of settlement (e.g. 97% or
90%), which become alleged loan, and as such are a form of appropriation of
property rights to credited product (which we would called duplication of
ownership). In fact, these amounts created by the bank should be a form of
legal issue of money for the public, conducted on a Pro Bono Publico basis.
The first owner of such money should be owner of loaned product. Through
its expenditure (consumption, investment, taxes and alms) this money reach
the rest of the society, creating a turnover that facilitates alleviation human
needs. The consequence of such precise thinking on the emergence of money
is the formulation, in regard to financial policy, of two postulates, as two
variants of reasonable action:

No. 1 On the real loan, without the created amount, of a commercial

bank loan should be interest bearing. A bank would then receive repayment
of the authentic loan and draw profits only from interest on that amount. The
borrower would repay to the central bank the amount created by a
commercial bank, and no interest would have to be taken on it. The
difference between loan and issuance, returned by the borrower, which is the
amount of monetization of the economy would be added to the budget and
further distributed according to social and economic needs.
No. 2 Another option is to generally separate the loan action from money
issue, which should be conducted on other principles, for example,
exclusively by central bank. However, loans could be granted exclusively
from its own resources or from deposits, preferably with the knowledge of
the depositors, who would be expecting to participate in profits, they would
participate in the economy risk of the borrower, therefore they would
participate not only in the profits, but in losses related to the project financed
by the loan.
Hence, here are two options of legally, financially and economically
reasonable solutions, although they require further analysis and additional
comments. 

Current monetization of economy through bank created money M ' (by
crediting accounts of producers and providers of services) is, in fact, a real
monetization of actually developed property. However, in quantitative terms,
it is not introduced in accordance with economic parity: ΔM=(ΔT)P/V. In
bank procedures concerned with granting of loan such complex calculations
are not taken into consideration. Borrower’s so-called creditworthiness is all
that is needed and the product covered by the loan. The requirement of
creditworthiness, as a basis for creation of money by the bank, is not directly
related with the demand for emission resulting from the emission equation:

!18
ΔM=(ΔT)P/V. Substantial increase in the quantity of goods on the market, of
course, creates the need for emission. However, the compliance of loan
activities carried out by private banks with the economic parity is a rare case
among many possibilities. Solutions described in the postulate no 1 and no 2
introduce possibility of controlling the level of monetization of the economy
by the central bank. Postulate marked number 1 gives offer flexible manage
of monetization conducted in the form of bank creation and traditionally
carried out by the bank usually spontaneously. Postulate No 2 is a very
drastic limitation of the activities of commercial banks, which may be
introduced as a sanction against banks that fail to comply with the rules
described in the postulate No. 1. The most important thing about the two
postulates is that they constitute a cure for duplication of ownership right,
which is a basis of social injustice in the system of usury capitalism, they
both render unnecessary the issuing of bonds and incurring of debt. Both
constitute a bridge towards non-interest based banking, based on issuing
full-value money, operating thanks to development of real economy. Before
we discuss this issue, it would be best to first look closely at how
monetization of the economy is currently done.
Currently lending in comparison to the needs of monetization is too
small or too large, and its dynamics does not change randomly, but is
created. This extremely lucrative business of which the issuing of means of
settlement is, including assignment by the emitter of property rights to them,
it has not been left alone and has not developed by accident. Plenty of loans
at the beginning is promotion of bank money M '. Cheap loan allows people
to better or faster meet their living needs or quickly realize their possession
desire. Repayment of interest at the beginning is not troublesome because
there is M money in society, and a large supply of new M' money. The rate
of turnover V has been set in the realities of abundance of M and M' money
makes it possible to acquire funds to repay the loan. Monetization and
supply of M money takes place in a wave.
There is a mild fluctuation at the initial period of credit boom: GDP
growth resulting from increased supply of M 'is a reason to raise interest
rates: rc and rd, in such a way as to consume increase of goods and to avoid
potential inflation through interest and manipulation of interest rates.
Economic growth is blocked by increase in interest rates (so-called "price of
money”) making hoarding more profitable. This is the so-called "Restrictive
financial policy" leading to a weakening in the growth of GDP, which has
always surprised honest economic analysts and is surprising for them.
However, at present the policy of shaping interest rates is subjected to the
interests of people living on capital who are not worried that it remains in

!19
opposition to the needs of society and its economy. After monetization of
economic growth using increase in the interest rate rd, there is lowering of
interest rates rc and rd, - again investing becomes more profitable than
hording.
This fluctuation merely consists of regulation (or rather, deregulation)
of interest rates and cyclical of micro-crises and micro rallying of the market
and is relatively benign. Despite the use of such mechanism, quantity of M '
money is constantly on the rise. Excessive emission of M' – this money that
is available from the time granting a loan – it means that money is present in
society, despite having to repay debt obligations M'', which after all are
deferred (sic). Plenty of money M' causes prices to rise, loans are contracted
in an increasingly higher amount while the loan agreements guarantees
increasing profits for the private banks.
However, this situation is not favorable to the largest private banks of
issue: for example, the Fed and the EBC. Deepening of inflation reduces the
real purchasing power of money collected much earlier due to the repayment
of previous credit debts. In addition, a large supply of money M' allows the
public to conduct business independent of the bank loans, which leads to the
freeing the citizens (and economy) from loan – it is enough to wait, save
money and buy good for cash directly from the vendor. Suspension of
lending of money, (no new supply of money M 'on the market) - is not only
halting of inflation, but also protection of bankers’ interests, which could be
depleted by "short sighted" policy of maximizing profit from interest on
loans. Suspension of lending M' money supply under the necessity of having
to repay the amount of M'' will not only remove inflation, but gives rise to
deflation. This is so because repayment of the loan money M and M' reduces
the amount of money on the market and blocking of issue of M by state
officials working with bankers (which has already become a shameful
norm), makes the money M harder to obtain. As a result of minimizing or
withdrawing loan monetization M' there is collapse of the market and
economic damage incomparably greater than micro-crises caused by
manipulation of interest rates. The financial collapse and the accompanying
severe economic crisis - following the period of boom is the "economic
cycle of interest banking" - the second type of fluctuation and method of
imprinting financial authority of the largest banks at the expense of the
smaller banks (depending on the giants) and at the expense of society. As a
result of artificially induced deflation and economic collapse major banks
take over smaller ones for ridiculously low price, and sometimes they get
money for these operations from government, which currently means from
the taxpayers, this took place for the first time in history, in the U.S., during

!20
the on-going crisis as a result of decisions of President Barack Obama, who
represents the interests of Wall Street bankers. Thus, deflation is far more
profitable for the biggest bank, significantly more profitable than relatively
insignificant profits from interest. It turns out that those who have money,
earn the most when the others have scarcity - the fluctuation of economy and
financial crisis is precisely for this purpose: crisis of the society,
entrepreneurs and small banks, and "wonderful times" for financial
oligarchy.

Main conclusions from the presented equation:

1. In agreeing with the existence of a private interest-bearing
financial system creating debts for the citizens we "produce", in
addition to useful products and goods, our own pseudo debt to the
banks. It is further magnified by the public debt, debt of the whole
society.
2. Our issuance of debt is a result of lack of awareness; which is a
result of manipulation of information during economic
educational and action of some of the media.
3. Production of debt consists of issuing new money under the guise
of lending a loan. Debt arises through duplication of ownership of
loaned amounts. It is justified by the need to pay out money at the
request of the borrower. However, cash payment is increasingly
rare. More and more people have come to accept M' money.
Hence simulation of M loan during M' loan emission as well as its
consequences in the form of charging the borrower M'' debt, are
becoming more widespread and apparent financial abuse. The
public debt is the result of the government giving up its privilege
to issue money.
The effects of such financial policy can be clearly seen in Figure No. 1
illustrating the basic units and macroeconomic relationships. The figure was
prepared for the case of Poland using data from the Polish National Central
Statistical Office and the Ministry of Finance covering the years 1995-2009,
according elaboration by many authors.
Between 1996 and 2009 the monetary aggregate M1, meaning cash plus
bank deposits repayable on demand, increased by 548%. The supply of cash
outside banks increase by 375%. M3 aggregate cash deposits and time
deposit accounts: 493% increase. [X7] GDP at current prices increased by
299%. Of course, such large increase is the result of inflation. It is

!21
significantly more dependent on the increase in financial resources than by
growth in the real economy.
Polish foreign debt; increase by 570%. At the end of the first quarter of
2009, (NBP data http://www.nbp.pl/statystyka/dwn/zadl99_09kw.xls), total
foreign debt amounted to 798.4 Billion Polish zlotys. The total debt of
Poland: precise total external debt plus internal debt of the public finance
sector, in the second quarter of 2009 amounted to (data http://
w w w. m f . g o v. p l / _ f i l e s _ / d l u g _ p u b l i c z n y / z a d l u z e n i e / p u b l i k a c j e /
zsfp_2009_ii.pdf MF) 1252 billion zlotys, a level close to 100% of the GDP.
(The data do not include the internal debt of households and private
companies). 

Between 1997 and 2005 the percent of people living below the subsistence
level (absolute poverty) increased by 228%. After 2005, as an recipe to the
pauperizing of people in the Third Republic, a different statistical method of
calculating subsistence level, which resulted in a decrease in rates in 2006 to
around 7%, was used but in subsequent years, even the new fairly unreliable
index grew to above 12% and was rising further, when a new statistical
solution was found, not releasing aggregate absolute poverty index to the
public. Today, we can bet that this index has since exceeded 20% (an
increase by approximately 400% since 1997).
The only curve with a downward trend is turnover curve calculated
according to the equation, V = PKB/M1 (a decrease of 50%). This curve
shows falsehood of the statement that the banks mediated in cash turnover
and facilitated the turnover. It turns out that it is precisely the opposite.
Banks limit trade in financial resources by replacing the turnover – with
issue of loan debt. Increase in debt and its repayment, first translates into
increase in wealth disparity in society, then in decline in the trade and finally
in rise in the level of poverty among its citizens.

Figure No 1.

The basic macroeconomic units and relationships in 1995–2009 in

Poland, data at the end of the year (from 31 December). In 2009, data from
the June or September. On the basis of data from National Bank of Poland,
Central Statistical Office and the Ministry of Finance, according to
elaboration of many authors.

!22
 >>> Graph here <<<

III. Exit Road. 


Freeing the money issue from of informational
manipulation and pseudo debt. 


A deep analysis of the realities of the manner of issuing means of

settlement makes it possible to separate features under which M and M
money as well as money derivative M' - M'' debt function. Constructive and
legally reasonable solutions to the problems posed by faulty concept of
emissions will be presented in the third part.
First we would have to forget about manipulation by David Ricardo
and others suggesting that the money issue always leads to inflation.
Dismissal of this misused claim does not require great intelligence; all it
requires is basic honesty and knowledge of mathematics at primary school
level. Lack of understanding of simple mathematical (and ethical) principles
by liberal and neo-liberal economic graduates (economic deregulation)
results from exposing of young people (students) to academic manipulation
related to examinational stress and concern for own fate.
People without previous contact with academic liberal economics
often much easier and faster grasp the realities of interest-based system of
debt money, than people exposed for years to economic indoctrination based
on erroneous and unethical assumptions. It is difficult for the students of
economics and finance to believe that they, including their professors, are up
to their neck in error. John Maynard Keynes's observation The difficulty lies
not so much in developing new ideas as in escaping from old ones that are
deeply rooted in every who has received as education as most of us, is still
valid.

!23
 Secondly, the rules of emission and money parity should be
formulated differently than did Ricardo and others in the previously
described five principles.
Issuance of money as a full-value means of settlement, which does not
have to be repaid to anybody, should be based on increased value-added
constituting GDP, i.e. increase in the quantity of goods and services
available on the market. The growth of these assets comes through socially
organized human labor, where a vast majority of people participate, often not
directly related to production process, but members of the public influencing
production through their useful activities. As a result, all these people create
national income and participate turnover V. However, spontaneous
mathematical multiplication of goods do not occur in production process in
any way - so there is no reason conduct the issue of money through interest
(interest rates and interests). Resigning from calculating interest during the
process of emission is a healing of this money issue. Interest - otherwise
called usury - from the dawn of history was seen as a pathological
phenomenon. We could here evoked the words of Keynes's concerning
liberal economy; A much more emphatic test of some idea is its eradication
of its belief in that which is obvious than the introduction of something
mysterious and distant to the commonly accepted notions. Liberalism
Theorists managed to eradicate the previously widespread conviction of
pathology of usury [8].

The new economic and monetary equilibrium equation is as follows: 


E+MV+M'= PKB

It has no interest or debt. There is also no V' coefficient because the value of
turnover V' for bank deposits is 1 Deposit paid from the bank become the M
amount and takes part in turnover V (eventually changing the value of V).

Equation of reasonable money issue, therefore, takes the form:

DM=DPKB/V

Where: symbol D is the increase.

!24
 GDP growth is best monetized using full-valued money M. Its growth may
be used to feed the budget or be distributed among the most needy or both in
appropriate propositions. The proposal to divide it equally among all citizens
and all pay everyone an equal amount of money is a "flattening " of the
benefit that could be achieved through the money issue, but surely this
would be a much better solution than getting interest on money generating
additional profits exclusively for those with surplus financial resources, i.e.
increasing the gap between the wealth and the poor in the society.
Monetization of GDP growth through issue of money M, is assumed to
adopt one of two postulates concerning bank money creation, as described in
Part II, points 1 and 2, of the article
Thus a commercial bank would apply interest rate on actual loan and the
borrower to the central bank, from where it will be further distributed, would
pay the amount created.
Either the national central bank - at the request of its citizens (sic) –
separates money issue from lending, thus limit loans issued by the
commercial banks to amount of financial capital it has. In such conditions, a
socially controlled central bank (SEBC and the ECB) independently carrying
out monetization of the economy, conduct its money issue and interest-free
bank operations, guided by the principle of social good: Pro Bono Publico.
Increase in the M value as a result of monetization of increase in goods
would gradually free the economy from the need to borrow, however, it does
not stamp out this possibility. The most important is that this stops sequence
of economic cycles and prevent emergence of crises (at least those occurring
due to structural defects of the capitalist (usury) financial system). Another
effect could be the loans will be cheaper (lowering of interest rates) and
start-up economy creativity of the banks, which will stop drawing undue
profits from creation of money and be contented with a simple calculation of
interest. The banks with their own and entrusted capital at their disposal will
be able to invest in projects more appealing to the public, such as funding of
research or implementations of new technologies that would further reduce
production costs or protect the environment, and therefore valuable
(profitable) to the public. Such new uses of accumulated capital could lead
to the public changing their opinion about banks that has been severely
damaged by the action of indebting nations. This is the way to banking
renaissance - that is, subordinating it to socially acceptable values.
As regards to freeing the societies of pseudo debt, the created money M'
should be legalized, recognizing it as a full-value, legal tender. Hence, the
"need" for simulation of loan for the creation of money when issuing loan
and its consequences in the form of charging the borrower a M'' debt will be

!25
liquidated. Recognition of intrinsic value of M' created money (without
duplication concerning its ownership right), is a premise and may be a
reason for nullifying debt'' M [9].
Such an operation would not change the amount of available means of
settlement, although the new economic conditions resulting from the release
of the public from debt would require careful monitoring and implementing
of adequate measures. It would be necessary to wait with the issue/
monetization of (M), since a greater percentage of the M' money freed from
debt reach the market and become an inflation impulse, also, through
increasing the turnover rate V, which in Poland has fallen out to a value of
3.6 (i.e. 55 % of the value seen in 1996-2001, when its average value was
6.5). 

Increase in the quantity of money in the market and return to previous
turnover rate (or increase) is a positive phenomenon, facilitating for meeting
social needs, this results in higher tax revenues, making it possibility to
quickly repay public debt. The undue profits gained during public
indebtedness will offset any eventual inflation loss concerning internal
public debt holders. After stabilization of the economic situation, it will be
possible to proceed to monetization of the economy by issuing full-value
money M, according to observed and calculated economic parameters: GDP
and V. This issue can sometimes be divided into:
- consumer Fund - limited by the number of already existing,
manufactured goods.
- investment fund – subjected, in regards to aim, to social needs and
calculated according to production, which appears as a result of
implementation of investment.

NEW FINANCIAL ARCHITECTURE

This will be the beginning of a new path in economics and finance,
whose implementation is an obvious need. Interest-bearing debt-money
system, introduced as a state system over three hundred years ago in
England (by private individuals cooperating with corrupt monarch), based
on usurious medieval traditions rooted in deficit of bullion money, has just
come to an end. Its resuscitation has no economic, financial or social sense
(just like its introduction in Poland in the years 1989-1994). It is better to
start implementing new financial architecture based on the traditions of
twentieth-century social economy and, in Poland (in addition), consistent
with the provisions of the Constitution, which reserves the right for issuing
money only for the NBP [10]. It is possible to settle the remaining monetary
!26
issues in Poland and widely in the EU, through passing of appropriate Act,
including means of calculating the budget and budget deficit, which is
flawed and needs serious correction [11]. Even the adoption of the EURO in
Poland should not lead to loss of exclusive right to issue money by the
Central Bank, as all the central banks of EU countries (SEBC) may (and
should) have the right to issue common European currency, EURO, and
introduce them on the basis of established principles in relation not only to
coins, but also to banknotes. This requires extension of the New Financial
Architecture to include the European Union (SEBC and ECB). This should
be an overarching strategic objective for all the positive social forces in
Poland, the EU and the world.
Jacek Andrzej Rossakiewicz Warsaw, 19.11.2009 - – 29.08.2010

www.demokracja-finansowa.pl 


FOOTNOTES: 

[1] See Wojciech Morawski, Zarys powszechnej historii pieniądza i bankowości, Warsaw
2002, p. 92
[2] We owe the concept of economic parity to Jerzy Zdziechowski (1880-1975), who
gave it this name, adapting the Polish currency exchange rate to the realities of the Polish
economy in order to ensure profitability of domestic production. He contrasted such an
exchange rate with implementation of overvalued Polish currency, which only facilitated
speculative exploitation. Zdziechowski reforms we carried out in 1925-1926, when he
was the Minister of Finance, were extremely beneficial for Poland. Jerzy Zdziechowski,
Mit złotej waluty, Krzeszowice 2005, Wprowadzenie i komentarze aktualizacyjne Tadeusz
Radwan.
In this article the concept of economic parity does not apply to exchange rate policy, but
to the quantity of money in relation to the quantity of consumer goods on the market.

[4] David Ricardo, The High Price of Bullion, See W. Morawski, lc p. 109.
[5] According to the compilation by Kazimierz Abramski, Prawdziwy kapitał, part I,
Gdańsk 2003.
[6] Irving Fisher, The Purchasing Power of Money, See W. Morawski, lc p. 110
[7] John Maynard Keynes, The General Theory of Employment, Interest and Money,
Warsaw 2003, p. 30-31.
[8] All of the human history and literature from all ages bear witness that there is no
enslavement more irritating and arousing greater repulsion than enslavement at the
usurer. Two and a half centuries have passed since the fateful day on which the Dutch
usurper (reference to William thermal phenomena – author’s note) paid for the throne, by
putting England into the yoke of the usurer. During the reign of Richard II [...] usury was
an exceptional penalty for madness, extravagance, or hard luck, but today it constitutes
an indispensable prerequisite to satisfy even the most trivial needs. Today, even a child is
!27
born a debtor. This is not an exaggeration; unfortunately it is the bitter truth, and
governments in England, regardless of their party affiliations, although they interject like
never before in the minutest affairs of citizens, they all refuse to secure for the
government authority these most essential prerogatives of which the issue of money is.
They are afraid to tell Shylock [synonym of moneylender - the name of the Jewish miser
from Shakespeare's ”Merchant of Venice"] that in the future will be able to expect only
that which justly belongs to him, and nothing more.
Christopher Hollis, Money Crisis, London 1944, Poznan 1999, p. 134 (This book, which
was written in 1933 and published before the nationalization of the Bank of England in
1946, best illustrates reluctance of the English to loss their financial sovereignty, of
which the adoption of the EURO under the current EU's conditions is).
[9] Money issued by private banks should be legalized; it constitutes compensation for
the producers of goods. The amount of loans repaid so far to date by the borrowers
should be the proper of banks, as a means to nullifying of the claims of the bank towards
its customers. (The bank would be exempted from paying customers, the amounts of
loans already repaid. It would be a form of "making legal status real in relation to the
actual economic relations by relieving the debtor from the obligation of enforced
payments, which the creditor at any rate will not claim").
By contrast, the outstanding obligations of borrowers towards banks should be canceled,
when the repaid amount exceeds 3% (bank reserve ratio) of the net loan value, because
there is no reason for the bank to continue receiving social property. This would be
similar to "cancellation of debts", carried out by Solon in the sixth century BC, but it
should be remembered that in this case, we are dealing with pseudo and not real debt.
In addition, excessive indebtedness of citizens towards the state should be eliminated (tax
amnesty), in order to morally and financially rebuild the Polish society racked by
deflation. A return to Pro Bono Publico emission will easily reward the government this
"loss", and the freed up financial resources will, in any case, directly feed the economy
(in accordance with people's needs and market requirements). See Zasada anulowania
długów, part I and II D
Financial Democracy, No. 7,
http://www.rossakiewicz.pl/demokracja/df07.htm 

[10] the current practice of money creation by the banks carried out in Poland is contrary
to Article 227 Item 1 of the Polish Constitution. The state central bank is the Polish
National Bank. It has the exclusive right to issue money and to formulate and implement
monetary policy. Polish National Bank is responsible for the values of Polish currency.
Supporters of the creation of money by the banks argue that authors of the Constitution
had in mind only the issue of banknotes and coins, but this is not true. This entry is a
continuation of national monetary tradition developed in the Second Republic of Poland.
[11] This will push back the achieve of the threshold described in Article 216 item 5, of
the Constitution of the Republic of Poland, this entry, like the one contained in Article
220, is indeed curious. Both specified articles entered into the Polish Constitution only
serve the interest of the usurers and are intended to protect their interests – they can,
however, be neutralized by appropriate statutory provisions.
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