Research On The Theory Of Financial Frontier

The thesis topic selection of theoretical research on financial frontier is based on the three factors, namely, the relation between finance and real economy, nature of finance and integrity of the financial development theory, of which the relation between finance and real economy is the core of the research. The financial frontier is the constrained frontier of finance relative to the development of the real economy and its theoretical prerequisite is the basic position of real economy to the financial development and the core position in the development of human society. The finance as defined in this paper refers to the value of the upper strata of finance or the so-called core of finance---financial instrument as well as the movement of the value in the operation of financial instrument market. The paper points out that the financial frontier has qualitative and quantitative determinations and is the unity of qualitative and quantitative determinations. By qualitative determination is meant the appropriateness of financial development, namely, financial development should take satisfaction of the maximum demand of the real economy development for finance as its constrained frontier and both over-financing and under-financing will do harm to the real economy. By quantitative determination is meant the constrained frontier of the value of financial instrument and value expansion in the operation of financial instrument market and this constrained frontier must be the potential Production Possibility Frontier of the real economy, PPF, namely, it must be within the limits of the potential GDP and tolerable inflation rate.Logic perspectives for analysis:first, fueling of the real economy by financial resources allocation, namely, financial efficiency perspective and both over-financing and under-financing are inefficient, which is mainly manifested in the total supply of money (including the discounting of financial assets). Secondly, the core of financial resources---monetary financial assets (including the discounting of financial assets) as a claim to wealth, its total value should match total products and labor services of the real economy, namely, the frontier perspective of total financial assets. If this frontier is broken through, the claim to the monetary financial assets won’t be realized in full-bodied money. Thirdly, modern economy starts off from the core of financial operation---money and ends with return of money. The money in the start period takes the value form of resources allocation and the money also allocates other social production resources while allocating itself; the money in the return form is calculated at the value of money in the physical form of GDP and emerges in the form of income---which is also expressed in money. Modern social and economic development goes on by starting from money and ending in money, namely, in the form of materializing monetary assets and monetizing real assets featuring a circulating and spiral annular movement. On the one hand, it reveals that money and financial assets that can be converted into money are not merely indispensable resources for social production; on the other, it reflects the nature of money and financial assets that can be converted into money as an evidence for the claim to social wealth (GDP in kind). The exercise of the claim to money is embodied in the ability to purchase commodities in kind and labor services in full-bodied money; otherwise it is the credit default on the part of currency issuer. In this sense, the total financial value expressed in the form of money should be equal to the GDP of the real economy expressed in value. Therefore, deviation of financial development from real economy has an objective constrained frontier. The breakthrough of the constrained frontier of financial development not only affects the efficiency of supporting real economy development by finance, but also results in the failure to outstanding claims. As far as the integrity of financial development theory is concerned, the theory should cover the financial frontier, namely, whether financial development has a constrained frontier or not. This is a question that must be answered theoretically. If the answer is positive, where is the frontier? This is a measure of financial development. Therefore, the financial frontier theory is advanced to fill in a gap which hitherto existed in the research on financial constrained frontier.The basic structure of the paper is as follows:there are eight chapters. Chapter 1 is an introduction of the topic, its theoretical and practical significance, methods of study, overall frame, innovation and inadequacies. Chapter 2 is a sourcing of financial frontier theory and review of related study. Due to the scarcity of special literature on financial frontier theoretical study, modern Marx’s monetary, credit and virtual capital theories, modern financial development theory, financial fragility theory, financial crisis theory and Professor Bai Qinxian’s financial development theory are studied and reviewed mainly as typical theoretical source while other related studies are summarized briefly. Chapter 3 advances the category of financial frontier based on the basic position of real economy. On the basis of defining the financial category and nature, a historical and logic demonstration of the finance that originates and deviates from real economy and finally returns to real economy is carried out and the category of financial frontier theory is presented. Based on the qualitative and quantitative determinations, the connotation of financial frontier is presented. Chapter 4 discusses the internal logic and external power for self-development of finance deviating from real economy. Based on such characteristics as credit, virtuality and expectation of finance and self-cycle performance of value transaction in the financial market, the author demonstrates the inner logic of self-development of finance deviating from the real economy. The external power for the finance to deviate from the real economy is demonstrated based on such trends as financial liberalization, discrimination reversal of the financing system, promotion under macro-economic policies of all countries, strengthened position of the financial industry and change of financial capital from real to virtual. Chapter 5 gives a substantial analysis of the finance that deviates from real economy by citing plenty of data and examples both at home and abroad from the international and domestic perspectives of value stock and flow of financial assets. Chapter 6 makes an effect analysis of excessive deviation of finance from real economy. On the basis of analyzing the objective rationality of deviation of finance from real economy in moderation, an analysis of the ordinary and extreme effects of the consequences of excessive deviation of finance from real economy. The harm of excessive deviation of finance from real economy is proved by citing typical cases showing the inability of financial assets value to return to the real economy—subprime crisis. Chapter 7 discusses construction of financial frontier theory hypothesis. A financial frontier hypothesis model is constructed based on a unified perspective of integrating macro with micro and economic with financial theory and the objectivity, dynamics and hierarchy of financial frontier are pointed initially. Chapter 8 discusses the financial control and management based on the financial frontier theory, in which the countermeasures for financial macro-control and management are proposed with respect to financial supervision, monetary management, financial institutional improvement and sustainable development of finance.The paper is creative in academic theories, research perspectives and research approaches.For the first time this paper has carried out a comprehensive, systematic and in-depth explorative study of the financial frontier theory, given a new dimension to financial frontier from the qualitative and quantitative determinations and constructed a financial frontier hypothesis model; it is an innovation, expansion and upgrading of the basic theory of financial development and it has provided a new theoretical support for the top-level design of state financial development strategy and decision-making.The paper focuses on the main subject that real economy is the foundation of finance. From historical, logic and realistic perspective, in terms of real economy’s financialization, financial assets’monetizaion and monetary substantiation, it reveals the core regulation that finance initiates from economy, then deviates from real economy, and ultimately returns to real economy.Its standard, substantiate, comprehensive and innovative methods of analysis and research involve philosophic, historical, human, economic, social and logic approaches. It overcomes the limitation of the research which merely focuses on the empirical theories of computation and presents the social and humanity nature of finance.