Abstract: The focus is on the banking system and how it is likely to operate if it is able to function without state interference. It presents a discussion as to how an economy with rising money incomes leads to a growth in the stock of money (an analysis important for later discussions of monetary control). It focuses on the flows of money from lenders to borrowers and analyses the differences between public- and private-sector borrowing on potential bank growth. There is also a brief analysis on the relationships of banks to money markets.

Keywords: bank lending, banking system, equilibrium scale, macroeconomic behaviour, money markets, money stock, private-sector borrowing, public-sector borrowing,