Self-Financing Economic Development

Abstract

This paper considers how appropriately designed financial institutions can allow economic development to become self-financing, and improve the management of the currency and the economy. The business concept of self-financing, not found in leading economic text books, is described. Related novel concepts are introduced to explain how economic development or underdevelopment arises. The need for maintaining a balance between the formation of wealth generating and wealth consuming activities, or earning and spending foreign exchange is identified. Selective monetary policies are proposed to balance self-financing development and to establish a market in loan insurance premiums. Markets then allocate new credit to self-financing activities with monetary contraction guaranteed. Selective policies provide a more precise and flexible policy instrument than relying only on interest rates in advanced or developing economies. The paper recommends that institutions like the World Bank change their role from distributing credit to distributing the technology of self-financing development.

Keywords: Central banks, Consumption assets, Degenerate assets, Development, Loan insurance, Monetary policy, Procreative assets, Self-financing, Surplus value

JEL Classification: B4, B5, D2, D3, D46, E2, E5, G2, O1, O2