<!-- generated: provider=openrouter model=arcee-ai/trinity-large-preview:free date=2026-02-19 source=book-2-chapter-02 -->

# Bank Credit Cycles

## Definition

The recurring patterns of credit expansion and contraction in banking, often involving initial over-extension followed by restriction as banks attempt to restore stability. These cycles can have significant effects on the broader economy.

## Source Chapter

Book II, Chapter 2

## Context

Smith analyses how bank credit tends to expand beyond sustainable limits before contracting, creating cycles that affect the entire economy. He shows how these cycles emerge from the interaction of bank behaviour and economic conditions.

## Economic Domain

General Theory

---
