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The Loanable Funds Cycle and the Variability of the Deposit Base

  • D. Gareth Thomas
Chapter

Abstract

The analysis lays the foundation for Minsky’s theory, which exposes the states of the economy it goes through over evolutionary time: expansion and significant progress, then downturn either in the form of recession with negative development (or growth recession) or full-blown depression with heightened uncertainty and risk that seems uncontrollable. At some stage, the economy goes into recovery mode from Darwin’s ‘survival of fittest’ account of the intense market competition, travelling back to the expansion stage with fresh consumption and investment opportunities to explore and exploit on account of Schumpeter’s process of creative destruction. This will have significant implications for the variability of the banking sector’s deposit base, which can be modelled within the catastrophe framework to explain abrupt changes in money as loanable funds in relation to the build-up of uncertainty and default risk within the monetary economy.

Keywords

Loanable funds cycle Minsky’s theory Recession Schumpeter Deposit base Banking Monetary economy 

References and Further Reading

  1. Keen, S. (1995). Finance and Economic Breakdown: Modelling Minsky’s “Financial Instability Hypothesis”. Journal of Post Keynesian Economics, 17(4)(Summer), 607–635. The Analysis Includes a Discussion Outlining the Basic Model of Minsky.Google Scholar
  2. Keen, S. (2011). Debunking Economics, The Naked Emperor Dethroned? London: Zed Books. Chap. 13. There Is Also the Same Summary of Minsky’s Basic Model in this Book on Pages 326–330, as in the Previous Article.Google Scholar
  3. Keynes, J. M. (1982). Activities 1931–1939: World Crises and Policies in Britain and America. In D. Moggeridge (Ed.), The Collected Writings (Vol. 21). London: Macmillan, Cambridge University Press, St. Martin’s Press for the Royal Economic Society.Google Scholar
  4. Minsky, H. P. (1975). John Maynard Keynes. New York: McGraw-Hill Professional.Google Scholar
  5. Minsky, H. P. (2008). Stabilizing an Unstable Economy. New York: McGraw Hill. The First Edition Published in 1986 by Yale University Press.Google Scholar
  6. Roubini, N., & Mihm, S. (2010). Crisis Economics: A Crash Course in the Future of Finance. New York: Penguin Books.Google Scholar
  7. Schumpeter, J. A. (1943). Capitalism, Socialism and Democracy. London: Routledge (Reprint, 1992).Google Scholar
  8. Thomas, D. G. (1999). The Diffusion of Output Expectations (Economics Paper 19, Working Paper Series). Hertfordshire Business School.Google Scholar
  9. Watt, R. (2011). The Microeconomics of Risk and Information. Basingstoke: Palgrave Macmillan.Google Scholar
  10. Wheelock, D. C. (1992, March/April). Monetary Policy in the Great Depression: What the Fed Did, and Why. Federal Reserve Bank of St. Louis Review, 74(2), 3–28.Google Scholar
  11. Wolfson, M. H. (2002, June). Minsky Theory of Financial Crises in a Global Context. Journal of Economic Issues, XXXVI(2), 393–400.Google Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • D. Gareth Thomas
    • 1
  1. 1.Department of Accounting, Finance and EconomicsUniversity of Hertfordshire Business SchoolHatfieldUK

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