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Edition 01 :08 September, 2013.




Monetary reform papers by L.F. Manning published at


Analysis of Jackson, A., Dyson, B., Hodgson, G. The Positive Money Proposal – Plan for Monetary Reform,

Analysis of the New Zealand Initiative (NZI) paper by B. Wilkinson : New Zealand’s Global Links : Foreign Ownership and the Status of New Zealand’s Net International Investment.

Capital is debt.

Chicago Plan Revisited Version II: An insufficient response to financial system failure.

Comments on the IMF (Benes and Kumhof) paper “The Chicago Plan Revisited”.

Debt bubbles cannot be popped : Business cycles are policy inventions.

DNA of the debt-based economy.

The end of capitalism : Systemic collapse.

General summary of all papers published.(Revised edition).

How to create stable financial systems in four complementary steps. (Revised edition).

How to introduce an e-money financed virtual minimum wage system in New Zealand. (Revised edition) .

How to introduce a guaranteed minimum income in New Zealand. (Revised edition).

Increases in export income from price rises abroad are not growth.

Interest-bearing debt system and its economic impacts. (Revised edition).

Manifesto of 95 principles of the debt-based economy.

The Manning plan for permanent debt reduction in the national economy.

Measuring nothing on the road to nowhere.

Missing links between growth, saving, deposits and GDP.

Savings Myth. (Revised edition).

There’s no such thing as affordable housing.

Unified text of the manifesto of the debt-based economy.

Using a foreign transactions surcharge (FTS) to manage the exchange rate.

What about a tax cut for the poor?


(The following items have not been revised. They show the historic development of the work. )


Financial system mechanics explained for the first time. “The Ripple Starts Here.”

Short summary of the paper The Ripple Starts Here.

Financial system mechanics: Power-point presentation. 


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This work is licensed under a Creative Commons Attribution-Non-commercial-Share Alike 3.0 Licence





By Lowell Manning

Version 2  Final

24th August, 2013





An imbalance between rich and poor is the oldest and most fatal ailment of all republics” (attributed to Plutarch)


“Money is not the key that opens the gates of the market but the bolt that bars them.”

(Gesell, Silvio, The Natural Economic Order, revised English edition, Peter Owen, London 1958, page 228).


Capitalism based on interest-bearing debt is drowning in its own waste.


It is drowning because it has institutionalised usury, providing something for nothing. Charging unearned income for the use of money.  Hands forever held out at the market gate. 


Were those hands to take a penny in the dollar from us each time we went to market, we would have just one penny left after ninety-nine market days.  That is where the world is at now. The gatekeepers have already taken most of our pennies.


We will be unable to buy or sell anything when the gatekeepers take our last pennies. There would be no money left either for production or consumption. The gatekeepers would have all the pennies and all the power that goes with them. They wouldn’t need us then other than as their economic slaves. Most of us would join the oceans of jobless and poor. Expendable blips on secret surveillance screens.


Debt-based money is the hand of God and Man; one and the same.  Money has become God while Man, in the guise of gatekeeper, claims divinity. That is why the major religions have banned usury for thousands of years. It is why there were debt jubilees in pre-Christian times every 49 years or so (7 “weeks” of 7 years).


Unlike money in pre-Christian times, our present money system is itself based on debt. For every penny of bank credit (debt and cash) there is a penny deposit somewhere. The banks own roughly 8% of those pennies. Some say the banks’ pennies have been stolen from us while for others they represent legitimate profit. Either way the result is the same.


The banks are gatekeepers.


There is more. If we are in debt to the rest of the world, the rest of the world also owns a share of our pennies equal to that debt. It becomes yet another gatekeeper: a gatekeeper in the international market. In New Zealand’s case, that’s another 18% or so of our pennies.


So foreign creditors are gatekeepers too.


The one to one relationship between debt and money is not secret. Anyone can see the numbers. They are reported every month by central banks the world over.


All bank debt is interest-bearing. The interest is made up of the “claims” rate, the interest paid by debtors to the bank. The difference between the “claims” rate and the “funding” rate  (the interest rate the banks pay to their deposit holders) is the bank “spread” the banks get to keep to provide their services to us, pay their tax, and generate their profit. 


The net profit from the spread after all the costs and deductions have been paid is “owned” by the banks. Some of it is paid out as dividends to shareholders. The rest of the profit it is undistributed and kept as a reserve. The banks use that extra reserve to expand debt exponentially. A net increase in their reserve of just 0.5% of the total bank debt after tax is usually enough to expand bank lending by more than 6% a year. That process is called leverage or “fractional reserve” banking. Most banks usually make more than 0.5% net profit each year. To increase their profits as much as they can, the banks usually lend as much as they can. Last year the New Zealand banks made about 1% after tax, enabling a large monetary expansion to take place.


The banks and foreigners are two of the gatekeepers at the market gate. Their growing wealth enables them to lend more and more pennies to those of us paying our penny entry fee each time we go through the gate. The banks say they are providing a service for their pennies but there is no special reason we should have gatekeepers at all. We do not need to borrow pennies from banks. We have been brainwashed into believing we must do so.


If the pennies themselves were publicly owned as most monetary reformers say they should be, the profit would belong to us, the public, and could be used for the public good instead of private gain. The banks’ hands would be removed from the market gate. We, the public, would get to keep some of our pennies and the market would be less likely to fail for lack of money. Because the banks would not be earning pennies on the money supply itself (the pennies themselves), the rate of growth of debt might begin to slow.


However, neither the banks nor foreigners always have the biggest hands at the market gate. Most of the rest of the pennies are held in domestic bank accounts where they do nothing but gather more of our pennies in interest.


Deposit holders often have the biggest hands ! 


Whenever the total net deposit interest the banks pay to deposit holders after tax is more than the sum of the net bank profit and the profit paid to foreigners, the deposit holders are collecting lots of our pennies at the market gate too.


In some countries, like Japan, the US and Germany, deposit interest rates are almost zero. In those countries there are no depositors’ hands at the market gate. But in countries like New Zealand with relatively high deposit interest rates the deposit holders’ hands are much bigger than those of the banks.


Very few people understand what happens when depositors’ hands take our pennies one by one. Depositors are not the same group as debtors because it is always cheaper to repay debt than hold both deposits and debt. Depositors are the “haves” and debtors are the “have-nots”. In “occupy” terms, the “haves” are the 1%, and the “have-nots” are the 99%. In the main, depositors hold money while debtors hold debt. Most deposits are called “savings”. Debtors pay “funding” interest to depositors just because they have deposits. The interest passes through the banks’ accounts but it does not belong to the banks. It belongs to the depositors.


Few deposits in the present banking system are used to do anything. Most are not circulating for production and consumption in our markets. The gatekeepers’ pennies exist because of the debt the rest of us must carry to pay them. They are not productively invested at any point in time. Nor are they usually at risk of loss because deposits are often insured against loss. There would be no risk of loss at all if we used a stable money system without gatekeepers.


There is no reason why depositors should get more of our pennies simply because they already have some. That is usury in the biblical sense: something for nothing. 


Most economists say that deposit interest is needed to offset inflation. The author’s work shows they have the cart before the horse. Deposit interest causes inflation because it reduces purchasing power in the marketplace. Every penny we pay at the market gate is one more we have to borrow if we want to keep spending in the market and maintain, let alone improve our standard of living. We can do so only if we get more pennies from the bank to give to the gatekeepers, to the banks and their deposit holders and to foreign creditors. On the whole, the further we go into debt the more to pennies we must pay them.


So there are three sets of gatekeepers: the banks, foreign creditors, and those holding interest-bearing bank deposits.


A free market is one without gatekeepers. The present multitude of gatekeepers means there is no such thing as a free market. In a free market there would be no bank debt created at interest. No interest paid on deposits. External accounts would be balanced.


That means eliminating inflation !


It can be done. Except for two short spells during the Tudor period in the middle of the 16th century and during the Napoleonic wars at the beginning of the nineteenth century, there was no aggregate inflation in England between 1300 and World War I though substantial relative variations in the prices of goods and services occurred from time to time.


The author calls the growing piles of gatekeepers’ pennies “systemic inflation”. Depositors and banks and foreigners build up their piles of pennies while the rest of us build up our piles of debt. That might be better than having no pennies at all but it leaves us in the worst of all worlds. The gatekeepers’ hoarded piles of pennies (“savings”) push up prices in the marketplace because we have to increase our prices so we can pay more and more pennies to the gatekeepers. Otherwise we go broke or starve.


Houses and businesses and other existing assets become dearer. The more pennies the gatekeepers have the higher the prices of those assets will be unless we can create new assets faster than the gatekeepers’ piles of pennies grow. That is mathematically impossible to do.


The author’s work shows the relationships between the gatekeepers and the market using an updated version of the Fisher Equation of Exchange. The Fisher equation is very well known. It relates the value of what we produce to the pennies we use to produce it. The author’s “debt” model includes all the gatekeepers’ pennies. It is the only economic model in the world that does so properly.  It simply says:


Debt =            (a)           The money we need to produce and exchange goods and services in our markets plus

                        (b)           The gatekeepers’ pennies we have paid on deposits plus

                        (c)           The existing pennies the gatekeepers lend directly to us or among themselves, called secondary debt, plus

                        (d)           The gatekeepers’ pennies we have paid to the banks (called “the bank residual”) plus

                        (e)           The gatekeepers’ pennies we have paid to foreigners plus 

                        (f)            Any extra pennies we have borrowed directly to buy the net new capital assets we have produced plus

                        (g)           Any extra pennies the banks have created for us over and above those we need to keep the markets operating. That is

                                        the so-called “bubble debt” that has recently caused so many problems around the world.


All except (a) are part of the investment sector or “the paper economy” as it is often called: (b) is usury calculated as the net interest on bank deposits plus the interest on (c) and (d).  The interest on (e) is also real but in the author’s work it is included in the current account deficit so it forms part of (e). 


We have to borrow (f) from the banks because we are told to “save” part of our market incomes instead of lending them among ourselves so we can buy the capital assets we produce. “Saving” is itself a kind of gate keeping unless it is used to help us pay for new capital goods, because we have to borrow more pennies from the banks to offset the “Saving”.


“Bubble  debt” (g) is debt over and above what the financial system needs to remain stable, like the “sub-prime” mortgages and so called “quantitative easing” in recent years.


The total debt and most of the other amounts in (a) to (f) are known or can be estimated so the author’s debt model can be solved at any time for (g). It can also be solved for any chosen combination of debt and variables (a) to (f). That allows the effects of monetary reform and other policy changes to be accurately quantified.


The author calls the variable (b) systemic inflation because it has to be built into the price of everything we produce and trade in the marketplace. Systemic inflation in countries like New Zealand that have relatively high interest rates has been crippling their domestic economies. So much so, that the economies of some countries are about to collapse because their systemic inflation (b) together with the increase in their bank residual (d) are greater than the measured increase in nominal GDP as it is measured under the system of National Accounts (SNA).


There are only a few options to combat economic collapse once all the increase in GDP has all been committed to the gatekeepers. 


We can:


(i)    Change the financial system to avoid usury or

(ii)   Accept rapid impoverishment as the gatekeepers destroy our markets by taking our last pennies or

(iii)  Redistribute wealth and money through more appropriate tax systems to force the gatekeepers to give us some of our pennies back or

(iv)  Reset the debt clock through some form of debt jubilee, but leave the gatekeepers with some or all of their pennies or

(v)   Destroy the gatekeepers and redistribute their pennies through revolution and war or

(vi)  Destroy the planet to provide an excuse to produce more pennies or

(vii) Some combination of the above.


Most of the options are unpleasant. Some are immoral.


Our present course is a combination of (ii) and  (vi), through our worship of the “growth imperative” god.  As more and more physical and natural resources are “used up” in the pursuit of more GDP, the world becomes more polluted and more unequal while climate change affects our living environment.


Option (ii) is possible, but it doesn’t fix the problem because systemic inflation will continue to rise and the condition of the “have-nots”, the 99%, will continue to worsen. Option (iii) buys a little time but is not a permanent solution on its own. The same is true of option (iv) : everyone going to market can borrow more pennies but the gatekeepers keep all those they already have and are then able to accumulate even more from us at a faster rate. Option (v) could well be about to happen. It has often happened in the past but it is a poor option because (aside from the catastrophic human and environmental cost) we cannot be sure whether what follows will be better or worse than what went before. That really leaves options (i) and (vii). If option (vii) is used, option (i) will have to be a substantial part of it because none of the other options will work on its own. Combinations without (i) are doomed to fail.


Option (i) itself faces formidable obstacles because money power is deeply entrenched. The military and surveillance authority of the State supports that power in most countries. The broad policy in the US is known as the Statement of Principles of the  Project for the New American Century” (Washington 03 June, 1997). That document puts the preservation and extension of an international order friendly to America’s security, prosperity and “principles, therefore its own strategic interests, first. This is not enough to guarantee imperial domination of the world as previous empires and the US have found out. The cost of dominance by US in recent times has resulted directly in the impoverishment of the American people. If the 99% there AND the rest of the world revolt against that dominance, the US empire is doomed to fiscal failure just like the Roman empire and others before it and since then.


The strategy for option (i) is to be prepared. That means having monetary reform implementation plans in place and a cadre of experts and others willing and able to implement those plans at short notice. Those experts and their allies need to be close to the action when it happens and be backed by large civil support groups and even wider public awareness of what is at stake. A good example of this is the proportional representation movement in New Zealand, one of very few cases in the world in recent decades where a major change in democratic rights has been achieved without bloodshed and with a majority support of the people and of Parliament.


Karl Marx may soon be proved right though for different reasons than he imagined. Capitalism in its present form will end because the inherently unstable financial system it uses will itself collapse. The role class plays in the struggle to come is unknown but it is doubtful Marx saw the odds approaching 99% against 1%.


Lowell Manning


For more papers by L.F. Manning on monetary reform see

"Money is not the key that opens the gates of the market but the bolt that bars them."

Gesell, Silvio, The Natural Economic Order, revised English edition, Peter Owen, London 1958, page 228.

Creative Commons License


This work is licensed under a Creative Commons Attribution-Non-commercial-Share Alike 3.0 Licence.