Money

Dr. Rita LittrellBessie B. Moore Center

for Economic Education

What do these items have in common?

• Cows• Tobacco• Cowry shells• Salt• Gold• Furs• Cigarettes• Oxen

• Spices• Nutmeg• Wampum• Ancient coins• Woven goods• Tea• Yap stones

THEY HAVE ALL BEEN

USED AS MONEY AT

SOME TIME IN HISTORY

BY SOME CULTURE!

Early humans specialized in

production: farming, hunting, fishing.

They realized that they could consume more goods if they traded.

Specialization• Production of fewer types of goods and

services than we consume• Leads to interdependence• We depend on others to produce many

of the things we consume

Markets were born.

Markets

• Places where people exchange goods and services

• People trade to consume greater variety of goods and services

Markets became larger and production became more specialized.People traded preserved fish, woven fabrics, baskets, game, furs – anything of which they could produce extra through specialization. Direct trade of goods is called barter.

Barter

• The direct exchange of goods and services

• Must have double coincidence of wants• Results in time costs• Resulted in need for a medium of

exchange

Finally, as more goods were

available, barter became difficult.

It might take a lot of time to find someone who has a blanket to accept

your chicken in payment for the blanket. This is called double-coincidence of wants. You might need to trade with others to get something the weaver wants in order to get your blanket.

People began to use items as a medium of exchange.

For example, the weaver might sell her rug for salt. The salt is a commodity that is desired by all. It can be used to preserve food or it can be used to buy another good ----as a medium of exchange.

Throughout history many things were used as a medium of exchange.Eventually, they realized that coins worked well for this function. They were valued because of the metal that could be used for other purposes. They could be melted down and changed as rulers changed. They could be saved for later use. This was the first function of money.

Paper currency of course!

Which country used paper money first?

Why?

Store of value – function 2!

Coins were good because they could be saved and used later. This allowed people to save. Our economic and financial system is developing. But, what works better as a medium of exchange and store of value than coins?

Commodity or Fiat

Commodity money has intrinsic value of its own. Fiat money is backed by government. The money has no value on its own.

Which is gold?

Does the US use commodity or fiat money today?

Measure of ValueA third function of money is that it can

be used like a measuring stick. It helps you to compare the price of two goods.

In summary!

The three functions of money are:•Medium of exchange•Store of value•Measure of value

Characteristics of Money

• Portable• Divisible• Durable• Uniform• Scarce

What is wrong with each

of these items that have historically

been used as money?

What is wrong with these?

In summary, characteristics of money should include:

Portable

Divisible

Durable

Uniform

Scarce

US Money Today

Money Today – Around the Globe

Financial Institutions

• Banks• Savings and loans• Benefits of saving money in

financial institution

What can you do with Money?

• Earn it• Save it• Spend it• Invest it

PowerPoint design created by Amy MooreBessie B. Moore Center for Economic Education