Text of Money, Output, and Prices FIN 30220: Macroeconomic Analysis
Money, Output, and Prices FIN 30220: Macroeconomic Analysis
Why does this piece of paper (cloth, actually)have value?
In the early 1920s, Germany experienced a period where the monthly inflation rate was 29,500% per month! Prices doubled roughly every four days!!! Using money to stoke a furnace! Money was more valuable as the paper it was printed on!
Yugoslavia (1994) 313,000,000 %/mo. Prices double every 34 hours Zimbabwe (2008) 79,000,000,000 %/mo. Prices double every 24.7 hours Hungary (1946) 13,600,000,000,000,000 %/mo. Prices double every 15 hours All time top inflation rates
What is Money? I cant define it, but I know it when I see it! ANY commodity that satisfies three basic properties can be called money Unit of Account Store of Value Medium of exchange Throughout history, many different commodities have been used as money
The earliest money was commodity money whose value comes from the commodity itself Tobacco Leaves Cocoa Beans Cowrie Shells Animal Skins Salt Precious Metals
Coinage began with King Sadyattes of Lydia, most commonly dated to 630-620 BC. While remaining a topic of debate by some, this type is now commonly considered to be the first official coin, meeting all of the requirements laid out in the dictionary definition: it is the first coin to have certified markings which signify a specific exchange value and be issued by a governmental authority for use as money.
The Chinese were also developing metal coins around 600BC
Leonidas I Sparta C. 480BC Alexander the Great C. 330BC Julius Caesar Romans C. 120AD Constantine I Byzantine Empire C. 330AD Charlemagne Franks C. 800AD Henry VIII England C. 1520AD and time marches on.
Egypt. 80-77BC Can you guess who these people are? Cleopatra and Mark Antony Elizabeth Taylor and Richard Burton from the 1963 film Cleopatra
The English Penny was introduced around 785AD by King Offa of Mercer. Originally, it was a coin of 1.3 - 1.5 grams of pure silver From the time of King Offa, the penny was the only denomination of coin minted in England for 500 years, until the gold coinage issue of King Henry III around 1257 AD. The penny was eventually standardized to 1/240 of a Tower pound (350g) of 92.5% silver (sterling silver)this was later switched to 1/240 of a Troy pound (373g) Note: Avoirdupois LB = 453G
Early on, the colonies (being British colonies) used British money Shilling (12 pence) Pence (Penny) Pound (20 shillings) Guineas or Sovereigns were gold coins with a value of one pound sterling All these coins are during the reign of Charles I (1625 1649). Inadequate supply of British money put commerce in jeopardy in the colonies.
Taking matters into their own hand, Boston authorities allowed John Hull and Robert Sanderson to set up a mint in 1652. Pine Tree shillings were minted until 1674 when the mint was shut down All the coins bear the date 1652. Why? Coinage was the sole prerogative of the king, but in 1652 there was no king (King Charles I had been beheaded three years earlier). They kept the date so they could deny any illegality if and when a monarchy was once again reestablished which it was in 1660.
Spanish coins remained legal tender until the coinage act of 1857! Spain established a mint in what is now Mexico City in 1535. Spanish ships returning to Europe would stop off in the colonies to buy supplies. This made Spanish money widely available in the colonies. Doubloon = 4 dollars (1/5 oz. of gold)Spanish dollar = 8 Reals (.88 ounces of silver) 2 Bits is still considered slang for a quarter!
On April 2, 1792 Congress passed the coinage act which created the mint. US coins made in 1792 were not minted for circulation and are EXTEMELY valuable. This 1792 penny sold for $603,750! The Constitution (1787) gives the congress the right to To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures (Section 8, Clause 5) The Coinage Act of 1792 defined a US Dollar as.0538 ounces of pure gold or.86 ounces of pure silver (15:1 ratio) same (almost) as the Spanish dollar The US mint began production in 1793
Where does the dollar sign come from? SU P The back of a Spanish peseta had two columns (the pillars of Hercules) wrapped with a scroll that reads plus ultra- beyond the pillars, there are other lands. Could this be the origin of the dollar sign? Imagine a U and an S (for United States overlapping) The dollar was fashioned after the Spanish peseta - the P stands for Peseta, the s makes it plural (what if the P and S overlap), the line indicates an abbreviation S P 8
Note that from 1793 to 1857, the cent was larger than a modern quarter The Chain link penny caused a lot of controversy..many believed that the chains represented slavery! The chain was immediately replaced with a victory wreath. The first circulated penny was released in 1793 Half penny 1793 All American coins must have an impression emblematic of liberty and the word liberty as well as the year. On the reverse of copper coins was required the denomination.
Half dime introduced in 1794The dime was first issued in 1796 Quarter: 1796 1794: US Half dollar 1794: US dollar (A gold dollar was released in 1849) On the reverse of gold and silver coins will be an eagle and United states of America. Denominations didnt begin showing up on silver coins until 1804 Production of silver coins ceased in 1964
1796: Quarter Eagle ($2.50) US Half eagle ($5) - 1796 US eagle ($10) - 1795 On the reverse of gold and silver coins will be an eagle an United states of America. Denominations didnt begin showing up on gold coins until 1807 Production of gold coins ceased in 1934 US double eagle ($20) - 1849
1964: JFK appears on the half dollar 1909: Lincoln appeared on the cent to commemorate the 100 anniversary of his birth 1932, George Washington appears on the quarter 1938: Jefferson appears on the nickel 1946: FDR appears on the dime due to his big support for the march of dimes
Currently, the US mint produces between 4B and 10B coins annually. As a self funded agency, the mint generated 3.89B dollars of revenues in 2010. The US mint has facilities in Washington DC, Philadelphia, West Point, Denver, San Francisco, and the bullion depository at Fort Knox. Women finally made it onto US coins! Susan B. Anthony was the first non-mythical woman to appear on a US coin in 1978 Sacagawea followed in Susans footsteps in 2000
Paper money first makes an appearance in China around 900AD Due to a severe copper shortage, the Chinese begin issuing paper currency. Frequent reissues fuel inflation
Each of the colonies issued currency. Most of these were bills of credit
Beginning in 1775, the Continental congress issued currency to finance the revolutionary war. Continentals were bills of credit not backed by gold or silver. Easily counterfeited, the notes quickly devalued, giving rise to the phrase not worth a continental!
A private business chartered by the confederation congress. Was the first IPO in the United States and the first Private Commercial bank. Later re-chartered as the Bank of Pennsylvania. Eventually acquired by Wells Fargo The founding fathers feared fiat money (for good reason with the failure of the continental). In fact, the constitution forbids states from issuing paper fiat money. Bank of North America (1782 1786)
The First bank of the US was chartered in 1791. While officially a private bank, the US government controlled 25%. The charter was not renewed in 1811. The Second Bank of the US was chartered in 1816. Its charter renewal was vetoed by Andrew Jackson in 1836 The second bank of the US existed for five more years until going bankrupt in 1841 The founding fathers feared fiat money (for good reason with the failure of the continental). In fact, the constitution forbids states from issuing paper fiat money.
Prior to 1838, a bank charter could be obtained only by a specific legislative act. However laws passes by various states after 1838 allowed the automatic chartering of banks by the states without any special legislative consent. From 1840 1863 all banking business was done by state banks
1837 1863 over 8,000 brands of currency issued by banks, state governments, private individuals, and private companies Anyone who satisfied the chartering requirements could become a bank and issue currency!