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