The 19th Century is over and so are its theories about money. There are now many forms of "money" besides paper calls on central banks. In fact even this call means nothing. All the US Federal Reserve promises to do when presented with US currency is to redeem it for more of the same.

The current crisis is because many of the new types of "money" that have been created over the past several decades have become decoupled from any pricing mechanism. The full faith and credit of Bear Stearns turned out not be worth much.

In addition to these new complex financial instruments, "money" gets created when credit cards are used or lines of credit are granted, or even deferred payment incentives are offered on retail purchases - "pay no money until 2009!"

Using old models just doesn't work anymore and there aren't any new ones. In fact most economists seem constitutionally unable to think beyond the rules they learned in Eco 101. Things like supply and demand, elastic vs inelastic demand, fiscal vs monetary policies by governments, etc.

The only new thought that has entered their world in the past several decades concerns externalities. Not that this is actually new, but now they have to acknowledge that it is important enough to factor into economic decision making.

They aren't yet ready to reconsider replacing the continual growth model demanded by capitalism/consumerism. Money is just a side show.

Policies not Politics
---- Daily Landscape