A Catastrophe Theory of the Endogenous Cycle of Loanable Funds

  • D. Gareth Thomas


The discussion of Minsky’s theory reaches up to the macro-level to expose the full effect of the credit phases and the possibility of the catastrophic moment, triggered by changing perceptions of risk and uncertainty. This leads to the modelling exposition in the form of the catastrophe framework of thought, where a number of multiple equilibrium paths can be taken by the financial sector, driving business (or residential) cycles with either inflationary or deflationary tendencies. This links to the deposit base embodied in the components of the money multiplier, which is driven by the mechanism of credit creation (or extinction) of loans. The variability of the deposit base is largely dependent on the state of the economy in terms of the cyclical growth of GDP, intertwined with the financial cycle of the multiple equilibria.


Catastrophe theory Loanable funds cycle Deposit base Money multiplier Credit Loans Credit phases 

References and Further Reading

  1. Akerloff, G. (1970). The Market for Lemons: Qualitative Uncertainty and the Market Mechanism. Quarterly Journal of Economics, 84, 488–500.CrossRefGoogle Scholar
  2. Cyert, R. M., & March, J. G. (1963). A Behavioral Theory of the Firm. Englewood Cliffs: Prentice-Hall.Google Scholar
  3. Foster, J. (1989). Evolutionary Macroeconomics. London: Unwin Hyman.Google Scholar
  4. Georgescu-Roegen, N. (1971). The Entropy Law and the Economic Process. Cambridge: Harvard University Press.CrossRefGoogle Scholar
  5. Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: Macmillan.Google Scholar
  6. Nelson, R. A. (1981, September). Research on Productivity Growth and Productivity Differences: Dead Ends and New Departures. Journal of Economic Literature, 19(3), 1029–1064.Google Scholar
  7. Oliva, T. A. (1991, May). Information and Profitability Estimates: Modelling the Firm’s Decision to Adopt a New Technology. Management Science, 37(5), 607–623.CrossRefGoogle Scholar
  8. Peters, E. E. (1991). Chaos and Order in the Capital Markets: A New View of Cycles, Prices and Market Volatility. New York: Wiley.Google Scholar
  9. Plath, A. D., Krueger, T. M., & Jolly, S. A. (1992). Dynamical Systems Model of Capital Asset Pricing. Mid-Atlantic Journal of Business, 28, 253–283.Google Scholar
  10. Schumpeter, J. A. (1943). Capitalism, Socialism and Democracy. New York: Harper & Row.Google Scholar
  11. Simon, H. (1979). Statistical Behaviour Under Uncertainty. American Economic Review, 59(4), 204–224.Google Scholar
  12. Stiglitz, J. & Weiss, A. (1981). Credit-Rationing in Markets with Imperfect Information. American Economic Review, 71, 393–410.Google Scholar
  13. Stiglitz, J., & Weiss, A. (1986). Credit-Rationing and Collateral. In J. Edwards et al. (Eds.), Recent Developments in Corporate Finance. Cambridge: Cambridge Press.Google Scholar
  14. Zeeman, E. C. (1977). Catastrophe Theory: Selected Papers, 1972–1977. Reading, MA: Addison-Wesley. 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

Personalised recommendations