ON THE ORIGIN OF MONEY (CONTINUED)
Although the introduction of uniform money
the minting of coins was
efficient compared with using cattle for money, which itself was efficient
compared with barter, the use of coins introduced other problems of
Remember what I said.
When you attempt to analyze many
problems in economics you need simply think of your own situation.
in a household, and receive income, and consume, and save.
about explaining, in part, how you behave.
How would you like to use only
coins as money?
How would you like to pay your rent, your tuition, your car
payment, your phone bill, and buy stocks and bonds, all with gold and silver
Yet this is what societies did for thousands of years.
Remember, the first coins show up in biblical lands around 700 B.C.
Bank of England was established in 1694 A.D.
The Bank of Scotland was
established in Edinburg in 1695.
The first bank in the United States opened
in Boston in 1785.
That is almost a decade after the Declaration of
That is a long time to go without currency and checking
accounts and use only coin.
Well, they didn't use
We need to
understand how we moved from gold and silver coins to our current money
supply, M1, which is currency in the hands of the public and demand deposits
at banks or bank-like institutions.
The First Paper Money
At this point I always ask the class the same question:
What do you think
came first, currency, like the $1 bills that we now use, or checks, like the ones
we write when we pay the rent.
Don't worry if you missed this.
You had a 50-
50 chance, yet everyone always misses it.
Checks came first.
I mentioned in class, and Adam Smith mentioned, that in Colonial Virginia,
tobacco leaves were used as money.
This is one of the many commodity
monies that we have cited in this class to this point.
Why were tobacco
leaves used as money when gold and silver coins were more efficient?
It is still there.
It now goes by
Note that this implies that George Washington, Ben Franklin, Thomas Jefferson, and all of the others did
not use banks until after our independence from England.