The Evolution of Money

Before money Barter system : relies on a “mutual coincidence of wants;” works only on a small scale

Functions of money Medium of exchange : something accepted by all parties as payment for goods and services Example in history : Roman soldiers paid in salt (salarium)

Functions of money,cont’d Measure of value: a common denominator to express worth (AKA “standard of value” or “unit of account.”) Example : our dollars and cents on a price tag

Functions of money,cont’d Store of value : allows purchasing power to be saved until it is needed Example : goods and services converted to money and vice versa

Early money Commodity money : money in the form of an economic good; has another use Examples : bricks of tea, corn, tobacco, gunpowder, cigs in prison

Early money, cont’d Fiat money : money by decree, has no other purpose Examples : coins, wampum

The American Dollar Colonial times : colonists used European coins; British shilling, Austrian taler, and Spanish peso (most common) The peso and taler looked similar,so they were both called “talers” and eventually “dollars.”

The dollar as monetary system Ben Franklin and Alexander Hamilton* decided to base the dollar on a system of tenths, rather than eighths (like the peso). *These are the only 2 Americans on currently printed bills that were not presidents

Characteristics of money Portability : easy to carry Uniformity: each denomination represents a standard value Acceptability: legal tender Durability : must be relatively long-lasting Divisibility : must be able to be broken down into smaller units Limited in availability/stability : must be relatively scarce, or it loses its value