Monetary Causes of the Financial Systems Instability

Abstract

Fundamental laws announce that energy does not arise from nothing, and every concentrated potential disperses in time. Economy is a part of overwhelming energy flows, and human labour have significant share in the total. Since labour is a transfer of human capital to products, the fair pays are justified by size of human capital of an employee. But the essential idea emerges that money arises as an accounting record of the equivalent of the accomplished work, as to say a pay receivable and, respectively, a payable. Contemporary practise of creating money by Central Banks or International Monetary Fund is in opposition to the first fundamental law; hence is conclusion that actions of this institution are the source of financial instability. What are more economies do not benefit from phenomenon of human labour self financing and therefore it pays compensation in the public sector with the tax funds. It defectively charges economies.

Self financing of labour changes little for the private sector, but can be revolutionary for the public sector and the control over the system of money. Understanding the true nature of capital as abstract ability of performing work, and limitation of its growth determined by the economic constant, which size is 8%, leads to the organisation of a new more stable system of the public finance. The Central Bank position changes radically; this organisation no longer creates money for the banking industry. The mandatory action of this institution is transferring compensation for employees in the public sector to their commercial banks accounts. The achieved level of labour productivity determines an adequate size of the funds for pay in the public sector.

The economy gains an impulse for development and stability. Taxation of the fair pay, namely, compensation consistent with the value of labour, is forbidden. The economics becomes closer to a kind of a science in view of the fact that the fundamental law announcing that energy cannot arise from nothing is respected. In addition, correct discerning of money as result of work done makes that the economy is robust for crisis with natural tendency for maintaining stability of all fundamental ratios provided peaceful condition are granted. This knowledge opens ways of essential reshaping in many field of economy; taxation, central bank functions, conducting money system, and fair pay determination. Finally it enables forgetting and extermination of paper money as an essential step towards suitable system of money and stable, honest economy.

Keywords: capital, labour, money, budget construction, Central Bank functions, monetary system

JEL Classification: A1, E6, H5, J3