The quantity that is determined by bank lending is not money, but total bank debt. Money, our purchasing power, is just a subset of that and is not fixed by the amount of lending.
That's right. And the relation between the two quantities is an important one. The debt-to-money ratio increased from 1916 to 1970, except during the FDR years:
|Graph #1: Total (Public and Private) Debt per Circulating Dollar|
|Graph #2: Total (TCMDO) Debt per Circulating Dollar|
Keep the ratio permanently low by creating policies that accelerate the repayment of debt, and we create the monetary conditions for a permanent quasi-boom.