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 times2. 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 demand2. In a “panic” money goes away and

economy shrinks3. 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 tenths3. Created by Franklin & Hamilton

Colonial & State Bank Notes1690-1861

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

Greenbacks1862-1971

(U.S. Notes)

1. Fiat money2. Declared “legal tender” by U.S. gov’t.3. State bank-issued notes taxed at

10% to eliminate them

Gold Certificates1865-1933

Paper money backed by U.S. Treasury gold

Silver Certificates1878-1968

1. Money backed by U.S. Treasury silver2. Replaced silver coins3. Introduced to help miners and farmers during hard

times

Federal Reserve Notes 1914-Present

1. Inconvertible fiat money2. 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