Evolution of money

1. The Evolution of Money

2. Before money
• Barter system : relies
on a “mutual
coincidence of
wants;” works only on
a small scale

3. Functions of money
• Medium of exchange : something
accepted by all parties as payment for
goods and services
• Example in history :
Roman soldiers paid in salt (salarium)

4. Functions of money,cont’d
• Measure of value: a common denominator to
express worth (AKA “standard of value” or
“unit of account.”)
• Example : our dollars and cents on a price tag

5. Functions of money,cont’d
• Store of value :
allows purchasing
power to be saved
until it is needed
• Example : goods and
services converted to
money and vice versa

6. Early money
• Commodity money : money in the form of an
economic good; has another use
• Examples : bricks of tea, corn, tobacco,
gunpowder, cigs in prison

7. Early money, cont’d
• Fiat money : money
by decree, has no
other purpose
• Examples : coins,
wampum

8. The American Dollar
• Colonial times : colonists used European coins;
British shilling, Austrian taler, and Spanish peso
(most common)
• The peso and taler looked similar,so they were
both called “talers” and eventually
“dollars.”

9. The dollar as monetary system
• Ben Franklin and
Alexander Hamilton*
decided to base the
dollar on a system of
tenths, rather than
eighths (like the
peso).
*These are the only 2
Americans on currently printed
bills that were not presidents

10. Characteristics of money
• Portability : easy to carry
• Uniformity: each denomination represents a
standard value
• Acceptability: legal tender
• Durability : must be relatively long-lasting
• Divisibility : must be able to be broken down
into smaller units
• Limited in availability/stability : must be
relatively scarce, or it loses its value