Chapter 11Money & Banking

From cattle to the dollar

Cattle Animal skins, including deer and elk

bucks Tobacco Wampum- white conch and black

mussel shells

Functions of Money

Medium of Exchange Salary comes from Latin term “salarium” Romans got paid in salt

Measure of Value Store of Value

Money in early societies

China= Tea leaves compressed into “bricks”

Russia= compressed cheese East African Masai= miniature iron

spears fastened together to form a necklace

Money

Commodity money- money that has an alternative use as an economic good or commodity

Flat money- money by government decree

Characteristics of Money

Portability- easily transferrable Durability Divisibility into smaller units Limited Availability

Early Banking

1811 state banks became popular Each bank issued their own currency as

long as it was backed with gold and silver reserves

By the Civil War, the US had more than 1600 banks issuing more than 10,000 kinds of money Different currency for each bank Temptation to issue too many notes Counterfeiting

The Greenback Standard

1862 Congress passed the Legal Tender Act Print $150 million US notes Help support the Civil War

Greenbacks National Currency Gold certificates Silver certificates Treasury coin notes

Gold Standard

1900 Congress passed the Gold Standard Act

Price of gold was $20.67 an ounce Money could be exchanged for gold Ended during the Depression in the

1930’s

Gold Standard

Advantages Security Prevents the govt. from printing too much

money Disadvantages

Gold stock may not grow fast enough to support a growing economy

Everyone can convert to gold, depleting the stock

Gold prices are variable Risk of failure

Modern Banking

1863 Congress passed the National Banking Act

1913 Congress created the Federal Reserve System Federal reserve notes FDIC & NCUA

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Other Depository Institutions

Demand Deposit Accts (checking accounts)

Mutual Savings Banks Savings and Loan Associations Credit Unions