The reason the workings of our monetary system are taught incorrectly is that the details of how it operates in practice are too complex for students to study in a reasonable period as part of an undergraduate course. Instead they learn an oversimplified cartoon version of reality. Teaching simplified models is not necessarily a bad thing so long as the choice of simplifications are well made. It is done all the time in physics and chemistry without problem. Unfortunately the choice of simplifications made in the teaching of our monetary system have led a great many economists to some disastrously wrong conclusions about the behaviour of money.
[youtube height=”390″ width=”640″]http://www.youtube.com/watch?v=CI5CFQXJxcA[/youtube]