Extract

The credit cycle is the periodical increase and decrease in credit conditions (supply, demand and price) in an economy. Credit cycle theories address the questions ‘What are credit cycles and why do they occur?’ and ‘Does the credit system cause volatility in the rest of the economy?’. Writers as early as the British ‘Assay Master of the Mint’ De Malynes (1601, Ch. 2) claimed that ‘[t]he Want of Money is the First cause of the Decay of Trade, for without money, commodities are out of request’. Sismondi (1815, Ch. 2) wrote, ‘[i]f it be then asked why [the entrepreneur] stops, he will answer, like the workman, that money is wanting, that money does not circulate’. Roscher (1878, p. 209) wrote that ‘a general crisis may be produced, especially by a sudden diminution of the medium of circulation’. Marx (1887, Ch. 30) observed that ‘[i]n a system of production, where the entire continuity of the reproduction process rests upon credit, a crisis must obviously occur…when credit suddenly ceases’.