Does Bank Lending By Itself Set Off Boom And Bust Cycles? – Analysis

By Frank Shostak*

Popular thinking says that banks are the key factor in the expansion of credit. However, is this really the case?

For example, take a farmer Joe that produces two kilograms of potatoes. For his own consumption, he requires one kilogram, and lends the rest for one year to a farmer Bob. The unconsumed one...