Brief Outline of Topics Covered in Lecture 1
Chapter 1: Why Study Money, Banking, and Financial Markets?
Why Study Money and Monetary Policy?
Why Study Banking and Financial Institutions?
Why Study Financial Markets?
Chapter 2: An Overview of the Financial System (pgs 25-27, 36-41)
Direct versus Indirect Finance
Structure and Functions of Financial Markets
Structure and Functions of Financial Intermediaries
Example to illustrate functions
Chapter 3: What is Money?
Meaning of Money
Functions of MoneyMedium of Exchange
Unit of Account
Store of Value
Video
Materials from class:
Extra Reading:
A Short History of American Money, From Fur to Fiat, by David Wolman, The Atlantic: What do animal pelts, tobacco, fake wampum, gold, and cotton-paper bank notes have in common? At one point or another, they've all stood for the same thing: U.S. currency.
Before independence, America's disparate colonial economies struggled with a very material financial hang-up: there just wasn't enough money to go around. Colonial governments attempted to solve this problem by using tobacco, nails, and animal pelts for currency, assigning them a set amount of shillings or pennies so that they could intermix with the existing system.
The most successful ad hoc currency was wampum, a particular kind of bead made from the shells of ocean critters. But eventually the value of this currency, like that of other alternative currencies of the day, was undermined by oversupply and counterfeiting. (That's right: counterfeit wampum. They were produced by dyeing like-shaped shells with berry juice, mimicking the purple color of the real thing.)
It was a crew of Puritans from Boston who first put their faith in paper. Initially, the Massachusetts Bay Colony tried to issue colonial coinage. The pieces themselves, struck in 1652, were made from a mash-up of poor-quality silver and were soon outlawed by the Brits. Less than a decade later the colonists tried again. They were forced to, really, because they owed money to the crown to help fund Britain's war against France, yet lacked any currency with which to pay up. They called the paper "bills of credit." The local government essentially said to the people: Here, just use this. It's real money. We'll sort out redeemability later.
There were endless debates, from prairie farmlands to the floor of Congress, about whether this paper was real money or just a smoke-and-mirrors scheme destined to end badly. ...[continue]...
