MONEY BARTER ECONOMY MONEYLESS TRADEBASED ECONOMY Functions of
MONEY
BARTER ECONOMY MONEYLESS, TRADE-BASED ECONOMY
Functions of Money • Medium of Exchange – Instead of borrowing • Measure of Value – Shows worth • Store of Value – You can use money in the future • You can’t hold on to agricultural goods all year, they rot
CHARACTERISTICS OF MONEY • Portability • Durability • Divisibility • Limited availability
TYPES OF MONEY
COMMODITY MONEY THAT HAS AN ALTERNATE USE AS AN ECONOMIC GOOD Ex: Trading furs in colonial French America
SPECIE (HARD CURRENCY) GOLD AND SILVER COINS
Advantages of “Hard Money” 1. Security in uncertain times 2. Controls gov’t. presses (they want to appear to have enough gold to back the paper)
Disadvantages of “Hard Money” 1. Must have enough gold to meet demand 2. In a “panic” money goes away and economy shrinks 3. Gold is bought at “market price” but notes are redeemed at a fixed price
FIAT MONEY (FIDUCIARY CURRENCY) MONEY BY GOVERNMENT DECREE (ACCEPTED BY PUBLIC) Based on Fidelity or trust
PAPER MONEY CAN BE BACKED BY GOLD OR SILVER BUT COULD ALSO BE FIAT MONEY
The Dollar (USD) 1. Word originates from the “thaler” 2. Divided into tenths 3. Created by Franklin & Hamilton
Colonial & State Bank Notes 1690 -1861 1. Each bank printed its own money (7, 000 different notes circulated!) 2. Too many notes printed w/o specie to back them 3. Counterfeiting was easy
Greenbacks 1862 -1971 (U. S. Notes) 1. Fiat money 2. Declared “legal tender” by U. S. gov’t. 3. State bank-issued notes taxed at 10% to eliminate them
Gold Certificates 1865 -1933 Paper money backed by U. S. Treasury gold
Silver Certificates 1. 2. 3. 1878 -1968 Money backed by U. S. Treasury silver Replaced silver coins Introduced to help miners and farmers during hard times
Federal Reserve Notes 1914 -Present 1. Inconvertible fiat money 2. Issued by the Federal Reserve System (NOT U. S. gov’t. ) 3. Notes greater than $100 were no longer printed after 1945
U. S. Coinage
Half Cents 1793 -1857
Large Cents 1793 -1857
Small Cents 1856 -present
Two Cents 1864 -1873
Three Cents 1864 -1873
Half Dimes/Nickels 1794 -present
Dimes 1796 -present
Twenty Cents 1875 -1878
Quarters 1796 -present
Half Dollars 1794 -present
Dollars 1794 -present
Central Banking in the United States • “First” Bank of the U. S. 1791 -1811 – Some funding provided by Federal Gov’t. – Conflicts with the 80+ state banks
Central Banking in the United States • “Second” Bank of the U. S. 1816 -1833 – Created because state banks issued too much paper not backed by specie – President Andrew Jackson “killed” this bank because he opposed centralized control
Central Banking in the United States • Federal Reserve System 1913 -present – “The Fed” is our current central bank – Government-created, autonomous institution – FDIC was created in 1933 to insure depositors’ money
- Slides: 47