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Chapter 11 Money & Banking

This chapter explores the fascinating evolution of money, from early forms such as cattle and animal skins to modern currency. It examines the functions of money, including its roles as a medium of exchange, measure of value, and store of value. The chapter also highlights the characteristics that make for effective money, the rise of early banking systems in the U.S., and the transition from commodity money to fiat currency with key historical milestones such as the Greenback Standard and the establishment of the Federal Reserve System.

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Chapter 11 Money & Banking

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  1. Chapter 11Money & Banking

  2. From cattle to the dollar • Cattle • Animal skins, including deer and elk bucks • Tobacco • Wampum- white conch and black mussel shells

  3. Functions of Money • Medium of Exchange • Salary comes from Latin term “salarium” • Romans got paid in salt • Measure of Value • Store of Value

  4. 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

  5. Money • Commodity money- money that has an alternative use as an economic good or commodity • Flat money- money by government decree

  6. Characteristics of Money • Portability- easily transferrable • Durability • Divisibility into smaller units • Limited Availability

  7. 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

  8. 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

  9. 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

  10. 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

  11. Modern Banking • 1863 Congress passed the National Banking Act • 1913 Congress created the Federal Reserve System • Federal reserve notes • FDIC & NCUA p.301

  12. Other Depository Institutions • Demand Deposit Accts (checking accounts) • Mutual Savings Banks • Savings and Loan Associations • Credit Unions

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