Chapter 11
Section 1
The Evolution of Money
The Evolution of Money
• Before today’s currency,
people practiced a
barter economy – a
moneyless system that
relied on trade
• People traded fish, milk,
shoes, anything valuable
The 3 Functions of Money
1. Medium of Exchange –
something accepted as payment
2. Measure of Value – a common
denominator that can be used to
express worth
3. Store of Value –property that
allows people to be saved until
later
Money in Early Societies
*Money made life easier so people used
whatever was scarce in their area*
Commodity Money – money that has an
alternative use as a good or commodity
(tea leaves, peppercorn)
Fiat Money – money used by
government decree (order)
Money in Colonial America
• Gunpowder,
musket balls, and
corn were used
as commodity
money
Money in Colonial America
• Continental dollars were
printed to finance the
Revolutionary War
• Specie – money in the
form of coins made from
silver and gold
Characteristics of Money
1. Portability
2. Durability
3. Divisibility
4. Limited Availability
CURRENCY
TYPE:
1.
2.
3.
4.
5.
6.
7.
Limited
Availability
?
Portable?
Divisible?
Durable?
Culture of
the Society
Parmesan Cheese: Ancient Italy
Coins: Roman Empire
Cocoa Bean: Early Mexican and
Central American Societies
Potlatch (Gift Giving): Native
Americans
Fur Skins: Ancient Russia
Ensuba (Potato Masher): Ancient
Cameroon
The Dollar: AMERICA!
Section 2:
Early Banking and
Monetary Standards
Monetary Standard
The mechanism designed
to keep the money
portable, durable,
divisible, and limited in
supply
Currency in the United
States
1.
2.
3.
4.
5.
6.
7.
Continental Dollars
Private Bank Notes
Greenbacks
National Bank Notes
Gold & Silver Certificates
Treasury Coin Notes
Modern Federal Reserve Notes
Growth of State Banking
• State Banks – banks that
operate from state
government
• At first, most state banks
printed only the amount
of currency they could
reasonably back with
their gold and silver
reserves
Problems With Currency
• Each bank issued
its own form of
money
• Banks could print
more money
whenever it wanted
The Greenback Standard
• During the Civil War, Congress wanted
to make one standard monetary unit
• United States Notes – a new federal
fiat paper currency that had no gold or
silver backing
National Currency
• To make sure greenbacks would not
become worthless, the U.S. created a
National Bank to keep things uniform
Alexander Hamilton Founder
Thomas Jefferson –
against it
The Gold Standard
A monetary standard where the basic currency
unit is equal to a specific amount of gold
• Advantages:
– people felt more secure
– prevented the government from printing too
much money
• Disadvantages:
– gold stock might not grow fast enough (the price
of gold might not change dramatically over time)
Section 3:
The Development of
Modern Banking
• Federal Reserve System – 1913, the
nation’s first true central bank
• Central Bank – a bank that can lend to
other banks in times of need
The Federal Reserve System
• For membership in the Fed, all national
banks were required to become
“members” (part owners)
• The Fed was organized as a corporation
– hopeful members had to purchase
shares of stock in the system
The Federal Reserve
• It is privately owned, but the Fed is
publically controlled… The president
appoints with congressional approval
• Federal Reserve Notes – paper
currency issued by the Fed
The Great Depression
• During this time, banks did not have
deposit insurance for their customers
• Customers rushed to withdraw their
funds, called a run on the bank
Federal Deposit Insurance
Corporation
• FDIC –insures customer deposits in the
event of a bank failure
Other Depository Institutions
• Savings banks
• Credit Unions
Dealing with Failed Banks
• Bank failures were also an issue in the
1980’s
• FDIC can seize the bank and either sell
it to a stronger bank or liquidate it and
pay off the depositors
• This worked for any bank – S&L’s, commercial
banks, etc.
US Currency Timeline
Create a timeline and label each of the
different types of currency used in
the United States.
• For each currency be sure to label:
– The time period it was used
– If it had any faults or problems
– If it was backed by any guarantee
As seen in the video clip, more and more societies
are switching to electronic currency (credit
cards). Consider the 4 characteristics needed
for money to be successful.
• Do you think using electronic currency is a
smart or risky idea? Why?
• What are the pros and cons to electronic
currency?
• What does this tell us about our culture?
Explain your answer in at least one
PARAGRAPH.