In this model I have used three economic actors engaged in transactions that involve the transfer of goods and the borrowing of money. The three actors are a corn grower, a seed dealer, and a bank.

Corn Grower

The grower owns land on which he grows corn, but he has no seed for this year’s planting, and he has no money with which to buy seed.

Seed Dealer

The seed dealer makes a business out of buying and selling seeds to and from farmers, such as our corn grower. In this model the dealer will sell corn seed to the grower, then, after the growing season, he will buy seed from the grower.

The Bank

The final actor, the bank, lends money to the grower for the purpose of buying seed. In return for a loan of current money, he accepts from the grower a note for an amount of future money. (We continue to refer to this transaction as a loan.) The difference between the amount of current money that the bank gives to the grower and the quantity of future money which the grower returns to the bank at the end of the growing season consists of interest.

A Single Bank

I have used a single bank to represent the entire banking system. That bank holds all money; therefore, the bank's deposit liabilities equal the money supply.