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poland in crisis

Marek Belka, President of the National Bank of Poland

It is written in Matthew: “Therefore keep watch, because you do not know the day or the hour.” On June 5th of this year, I wrote: “the Polish government can have their ‘Freedom Day.’ One day soon, the collaborators and beneficiaries of communism who run it will all wake up to “Truth day”—when Polish conservatives of the New and Old Right sweep them not only from power, but from history.” Little did I know that the “day or the hour” of Truth would be June 14th:Now.

June 14th was the day when the first of many secretly-recorded tapes revealing the scope of the corruption of the current Polish state, promised one billion USD in foreign aid by President Barack Obama, was revealed. The first of these tapes happens to be a recording of the president of the Polish central bank talking to the Minister of the Interior about plans to use monetary policy to stimulate artificial economic growth eight months prior to a parliamentary election so as to defeat their conservative opponents. The two gentlemen then go on to discuss the necessity of firing the Minister of Finance, who will not go along with their scheme, and then become sidetracked and discuss the size of the “members” of male members of the monetary advisory council.

I hope the United States Congress votes not one penny in foreign aid for the Polish state, because until this corrupt state is overthrown and replaced with a free and independent Poland, the American people can be sure that every dime of American taxpayer dollars will be wasted by these people, who are not only obviously corrupt, but also ridiculously inefficient. After all—if the Minister of the Interior (who is in charge of the secret services) cannot prevent himself from being recorded while conspiring to violate the Polish Constitution with the president of the central bank, then as the Minister himself claims on another tape “the Polish state only exists in theory.” The U.S. Congress cannot give one billion dollars in foreign aid to a state that “only exists in theory.”

The revelations are particularly irritating to me personally, because it just so happens that in 2002, the then-president of the Polish central bank, Mr. Leszek Balcerowicz,  hired me for three months as an advisor to draw up policy proposals as to how to maintain the constitutionally-mandated independence of the central bank from other branches of government which might want to pressure or influence monetary policy for partisan purposes. I never expected my proposals to be put into effect fully, but had they been taken more seriously by Mr. Balcerowicz—let alone by anyone else with whom I shared them in 2002—then Poland would have been spared the current embarrassment of having to listen to the head of its central bank discuss anatomical size, the writing on the walls in toilets, and the use of monetary policy for partisan political ends. As a public service to the Republic of Poland, I will briefly summarize my extensive proposals from 2002 below, in the hopes that someone might care to take them a bit more seriously or recover them from whatever drawer in the Polish central bank they were thrown into, now that the exact crisis Mr. Balcerowicz and I feared has actually come to be.

The basis of my proposals to ensure the independence of monetary policy from partisan politics was a close study of three books: Nobel economist Milton & Rose Friedman’s Monetary History of the United States, Ludvig Von Mises’ A Theory of Money & Credit and Murray Rothbard’s History of the Federal Reserve. The foundation for my proposal was the hypothesis that it is impossible, as a matter of political practice, to ever speak of the “independence of the central bank from partisan politics” and that if one wished to engage in sound central banking practices at all, it could not be done except by way of the establishment of a gold standard.

All public institutions, created by law, whose directors or managers are appointed by one or more branches of government, are and always will be inherently political and more or less partisan. This fact is borne out by the experience of the United States with central banking in the nineteenth and twentieth centuries. Government control of the money supply via a central bank removes the free market as the principle mechanism for regulating the dynamic supply and demand of money, replacing it with regulators who are by definition political appointees. As with all other such schemes, the groups most interested in securing their interests will lobby heavily for and against certain appointees. Where monetary policy is concerned, these groups are and always have been the big banks and corporations. In the nineteenth century, President Andrew Jackson abolished the Second Bank of the United States, and “monetary policy” was confined to those functions outlined in the United States Constitution. In the twentieth century, with the passage of the Federal Reserve Act, the regulation of money supply and demand was effectively removed from the market and taken over by the government. Since 1912, the politics of the “apolitical” battle for the control of monetary policy has had a tremendously negative influence on the stability and efficiency of the American economy. These negative effects grew progressively worse over the course of the twentieth century as the last barrier to complete government control of the money markets were removed by taking America off of the gold standard. The gold standard was the only thing that stood between full political control of monetary policy and a modicum of economic data that reflected real market values rather than the political whims of partisan regulators.

My analysis was in line with that of Federal Reserve chairman Allan Greenspan, who made similar points in his article “Gold & Economic Freedom.” The essential argument I presented to the head of the Polish central bank in 2002 was this: If a nation-state must have a central bank, it ought to have a gold standard, because only the gold standard will give the central bank a relatively accurate barometer by which to measure the real situation on the market, and only the gold standard can guarantee that any manipulation of the money supply that was politically motivated would be forfeit, since it would automatically result in ruinous inflation. Without a gold standard, with only fiat currency, the potential for a national economic catastrophe resulting from a conspiracy between partisan politicians and the central bank was almost impossible to avoid, unless public servants were always and everywhere men of virtue.

I was told that my views were radical and exotic, and my fears of a conspiracy of central bankers with partisan politicians was unrealistic. I was told that Poland needed to look to the European Union (EU) and to the guidelines of the Organisation for Economic Co-operation and Development  (OECD), not to Murray Rothbard or Milton Friedman, whose schemes had never been tried anywhere on Earth. I replied as follows: “Mr. President, you are a greater authority in economics than the OECD or the European Union. As Minister of Finance, you led Poland away from central planning and towards free market economics. As President of the central bank, your monetary policies helped combat hyperinflation and stabilize the new Polish currency. Sir—you should ignore the OECD and ignore the European Union and look to your own authority.”

Unfortunately, my appeal was ineffective. Because Poles decided to look to the OECD and the European Union rather than to their own authority, because they decided to build a monetary system based on EU regulations rather than based on a Polish application of the general principles of Milton Friedman, Murray Rothbard and Allan Greenspan, the last twelve years have given us this: a Polish President of the central bank conspiring to use monetary policy—something that ought to be administered for the public good and only in accordance with economic data—for partisan political gains by one major party in an election. This is a constitutional crisis of the highest magnitude. If this corrupt government falls, as it must, then that will not be enough: What is needed is the fall of this corrupt state and the establishment of a New Polish Republic by the conservatives in the Law & Justice and New Right parties, who will surely win the next election now. Only the establishment of a new constitutional order, a Polish constitutional order, which ignores the EU and the OECD and takes into account Polish national interest, will finally lead to the creation of a Polish state in practice, not theory.

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3 replies to this post
  1. Generally I agree with you but I must remind that all case has more topics (this two gentlemen, Belka and Sienkiewicz talk about involving Central Bank into politics but openly said that this involving should be directed against main opposition party, Law and Justice; and now case of use prosecutor and Internal Security Agency to seize from “Wprost”, which published those recordings, all materials), and PM Tusk pretends that he has nothing with this case. Situation is not so clear because Law and Justice ruled once (2005 – 2007) and it’s hard to call them party-of-independent-of-central-bank. You said also that Law and Justice should take of government with New Rights, but you probably know that between this two party there is any kind of sympathy (actually in many aspects New Rights is part of Pirate Party movement, only diffidence that they are “devout”), leader of NR is very controversial figure (also from conservative perspective). Most likely scenario is that in everything will intervene president of Poland and will try establish new force under his auspices based on ruled now party.

  2. The sovereign-state + enlightened national identity+ gold standard/”Austrian School” economic model(however modified) you’d think would be so self-evident by this time that such intellectual energies trying to get the powers-that-be to see the obvious needn’t be “wasted”. But failing-up is the new standard of achievement, so…”plus ca change…”

  3. My apologies to readers:
    – Anna J Schwartz was, of course, the co-author of A Monetary History of the United States
    – Murray Rothbard’s book is Origins of the Federal Reserve

    Mr. Grajczynski:

    You are right – the tapes have a variety of topics. I focused on the aspect of Central Bank Independence in this article, because of all the topics, I think this one is the most severe case of unconstitutional activity. Thus far, the remainder are not really worth writing about because while disturbing and indicative of possible illegalities and corruption, they do not violate the Constitution. As to the NR’s leader – yes, he is controversial, and he has certain faults (we all do). These faults may preclude any possible success for him and his movement. You are also right that there is no sympathy between the Law & Justice party and the NR – but there is also nothing else to hope for – so I hope for the what there is. You might be right that the President will initiate something new. We’ll see. For now, it appears the Prime Minister will not resign, so we can sit back and “enjoy” the sorry spectacle of Polish democracy decomposing before our eyes while members of the Press are beaten up by officers of the State and accused of being “Russian spies”. It’s too bad that all of this happened AFTER the horrible revolution in Ukraine, not BEFORE. Had this scandal blown before – then maybe it would have taken some of the wind out of the Maidan; driven as that event was by fantasies of Polish splendor…

    Miss Christoff-Kurapovna:
    The key is “by this time”. In 2002, when I wrote those proposals, they were not as self-evident as they are now. One of the greatest blessings of Polish political life in the 1990s and early years of this century was Mr. Leszek Balcerowicz who, while not without fault, is an excellent economist who was not afraid to take responsibility for the free market reforms that did so much to bring the Polish economy up to speed. I am honored that he even deigned to ask for such ideas and give them a hearing. I was young and impetuous then, and “Impetuous youth” (as Machiavelli called them) tend not to see the good, as they focus on the perfect. What was (and is) disturbing in general is that there are so few “powers that be” that even care to undertake an intellectual analysis of political life. Most of the tapes only confirm what people outside of politics have suspected for quite some time: we’re ruled by crass men who talk in gutteral terms. As one fellow put it – they all sound like prison inmates from a bad gangster movie, plotting their next petty move.

    Polish politics is not the high drama of Nixonian corruption even; it is rather like something out of the movie “Carlito’s Way”.

    At this stage; I have no idea where all of this will take us – but the fact that the state was so quick to use force against journalists is disturbing. Mr. Wipler’s words, spoken as he came to the defense of those journalists, were spot on:

    “If you think that there’s no democracy in Bielorus, come to Warsaw”.

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