lec_12_13_111B

lec_12_13_111B - ECN 111B: US Economic History since the...

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Lectures 12 & 13: Development of the US Lectures 12 & 13: Development of the US financial system financial system ECN 111B: US Economic History since the ECN 111B: US Economic History since the Civil War Civil War Winter 2010 Winter 2010
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Lecture Outline Lecture Outline State and National Banks Investment Banking Banking Crises Other Financial Intermediaries The Federal Reserve, 1913
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KEY Readings for Today’s KEY Readings for Today’s Lecture Lecture Essential Reading: Walton and Rockoff ch. 19 Atack and Passell ch. 18 Additional Reading: J. Bradford DeLong, "Did J. P. Morgan's Men Add Value?: An Economist's Perspective on Financial Capitalism," in Peter Temin, ed., Inside the Business Enterprise: Historical Perspectives on the Use of Information (Chicago, IL: University of Chicago Press for NBER, 1991), pp. 205-36.
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Why are banks important? Why are banks important? Banks create money on the fractional reserve principle Banks are intermediaries that can help allocate capital more efficiently Banking and financial problems can lead to real economic losses
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US Financial System, 1870-1913: US Financial System, 1870-1913: An Overview An Overview The US System was fragmented by state, regional and rural/urban divides Banking crises occurred roughly every decade from 1830s to 1907. The US became a global financial center… eventually
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A theory of “money” A theory of “money” The quantity theory of money: M = k PY M = Money k = the proportion of income held in money, a constant. P = the price level Y = real income or output Example: If M goes up and Y is constant then P must go up. Inflation!
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The Money Supply The Money Supply Pre-civil war US was “bimetallic” Civil war sees use of paper money Banks issued “notes” Gold Standard from 1879 until 1972
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US Federal Greenback, 1862 US Federal Greenback, 1862
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A Bank Note from Virginia, 1861 A Bank Note from Virginia, 1861 Source: www.homepages.dsu.edu/jankej/civilwar/money.htm
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Adam
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lec_12_13_111B - ECN 111B: US Economic History since the...

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