The use of Central Banks to Spread Ownership

Abstract:     
This paper outlines institutional arrangements for achieving accelerated self-financed democratic development with investment, consumption, income and savings increasing together instead of relying on a reduction of consumption to create the savings to finance investment or the need to use foreign finance. The arrangements are dependent upon introducing market forces to allocate interest free credit expansion by the Central Bank to finance projects that are self-financing to increase output. Credit is allocated by the price of investment loan insurance obtained through private sector markets outside the banking system. The cost of insurance replaces the cost of interest for democratically owned and controlled investments. An original theoretical framework is used to explain the arrangements. This identifies "consumption" and "degenerate" assets and the need for their current costs not to exceed current surplus values generated by "procreative" assets to allow accelerated development to be sustained without increasing government or external debt.

Keywords: Central banks, Economic development, Democratic ownership, Loan insurance, Monetary policy, Self-financing

JEL Classifications: B59, D39, E22, E43, E5, F33, G22, O16, O23

Working Paper Series