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 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 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 (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 Paper money backed by U.S. Treasury gold
Silver Certificates Money backed by U.S. Treasury silver 2.Replaced silver coins 3.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
Large Cents
Small Cents 1856-present
Two Cents
Three Cents
Half Dimes/Nickels 1794-present
Dimes 1796-present
Twenty Cents
Quarters 1796-present
Half Dollars 1794-present
Dollars 1794-present
Central Banking in the United States “First” Bank of the U.S –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 –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