The present work constitutes a reassessment of the role of potential-flow analyses in describing alluvial-bed instability. To facilitate the analyses, a new potential-flow description of unsteady alluvial flow is presented, with arbitrary phase lags between local flow conditions and sediment transport permitted implicitly in the flow model. Based on the present model, the explicit phase lag between local sediment transport rate and local flow conditions adopted for previous potential-flow models is shown to be an artificial measure that results in model predictions that are not consistent with observed flow system behaviour. Previous potential-flow models thus do not provide correct descriptions of alluvial flows, and the understanding of bed-wave mechanics inferred based upon these models needs to be reassessed. In contrast to previous potential-flow models, the present one, without the use of an explicit phase lag, predicts instability of flow systems of rippled or dune-covered equilibrium beds. Instability is shown to occur at finite growth rates for a range of wavelengths via a resonance mechanism occurring for surface waves and bed waves travelling at the same celerity. In addition, bed-wave speeds are predicted to decrease with increasing wavelength, and bed waves are predicted to grow and move at faster rates for flows of larger Froude numbers. All predictions of the present potential-flow model are consistent with observations of physical flow systems. Based on the predicted unstable wavelengths for a given alluvial flow, it is concluded that bed waves are not generated from plane bed conditions by any potential-flow instability mechanism. The predictions of instability are nevertheless consistent with instances of accelerated wave growth occurring for flow systems of larger finite developing waves. Potential-flow description of alluvial flows should, however, no longer form the basis of instability analyses describing bed-form (sand-wavelet) generation from flat bed conditions.