Money in the Bible
Gen 23:16: Abraham buys field:
400 shekels of silver
“according to the weights current among the merchants”
Old Testament -- coins not yet used
precious metals used as money by weight
Gen 37:28: Joseph sold for 20 shekels of silver
coins
invented 7th century B.C. -- Lydia
advantage:
standard shape, size
count, not weigh
coins: disadvantage
can debase
New Testament coins
mite: copper
Mark 12:42: widow’s offering
Greek coins: because of...
Alexander the Great
today: Greek currency is the...
drachma
ancient world: drachma=silver coin
drachma
silver coin: one days wage
Luke 15:8: woman with 10 silver coins
Matt 27:3: Judas
larger units
mina[pound]=100 drachma
talent=75 mina
talent: Matt: 25:14
15 years wage
New Testament: land ruled by
Rome
basic coin: denarius
3.8 grams silver
daily wage of woker
denarius
Mark 14:5: ointment: 300 denarii
Luke 20:24: give to Caesar...
Caesar who?
Tiberias (14-37 AD)
first emperor:
first emperor: Augustus (30BC-14AD)
later Roman empire: history of debasement
410AD:
fall of Rome
Dark Ages:
subsistence farming
in-kind obligations
little trade
medieval trade -- bill of exchange
IOU of trustworthy issuer can circulate as money
late 1200s -- banks in Italy
late 1200s -- banks in Italy
formed by trading families
Bardi and Peruzzi families of Florence--
finance imports of English wool / exports of cloth
Italian banks:
lent money to England and France for 100 yrs war --
both failed in 1300s -- Edward III default on loans
Jacob Coeur -- french banker early 1400s
grew rich -- lots of nobles owed money
disgraced by king on trumped up charges to avoid repayment of loans
Lorenzo de Medici
Medici family of Florence
ruled Florence starting in 1434
cloth and silk manufacturing -- later banking
financial services to church
4 popes from family / support arts and letters
Medici family
later turned more to power than business
also branch managers inefficient
bank failed at end of 1400s
Jakob Fugger “the rich”
Fugger family -- German 15th and 16th centuries
founder: weaver's guild
sons: goldsmith's trade
banker to church and governments /trade
descendents spent more time on estates
1492
treasure (mostly silver) imported to major power...
Spain
inflation after discovery of America
prices in England up 2.5 times in century after Columbus
quantity theory of money
coins were real money --
not paper notes
paper money in:
China
written about by:
Marco Polo
lots of different coins in circulation --
specie -- full value metal coins
Gresham
at first -- used largely for international trade
1609: Bank of Amsterdam
keep coins in storage at first
later made loans
by 17th century: goldsmiths began to become banks
Assets Liabilities
gold $100 notes $100
transferable bank notes would circulate as money
realize not all notes will be redeemed at once --
so start making loans and collecting interest
Assets Liabilities
gold $100 notes $1,000
loans $900
fractional reserve banking
possibility of run
1694 - Bank of England established
lent to government
notes were redeemable for coin
late 1700s: B.England notes were dominant form of paper money in London
1797: fear of...
Napoleon
suspend payment of notes
over-issue of notes - inflation
(often associated with wars)
Gresham's law:
hoard gold / spend notes
only temporary non-convertibility
1821: notes again redeemable for coin at old rate
America
1641: Wampum (shells) made legal tender in Massachusetts
(They were backed up by beaver pelts)
1642: Tobacco
legal tender in Virginia (it remained so for nearly two centuries)
outlaw contracts calling for payment in gold or silver
1690: Massachusetts issued paper notes (first in America)
Paper notes were later issued abundantly by Rhode Island,
South Carolina, and Massachusetts; the middle colonies were
more prudent with paper money issues.
1727: Tobacco certificates made legal tender in Virginia
1751:
Parliament forbade issue of further paper money in New England
1764: Paper money ban extended to all of the colonies
1775-1779: Continental Congress
orders 42 separate issues of paper currency; with a total face value of $242
million
continental notes eventually redeemed at 1 cent hard money per dollar
1789:
U.S. Constitution became effective
state governments explicitly prohibited from issuing paper money
Const. 1-8-5: Congress has power to coin money and regulate the value
thereof
Constitution
1-10-1: no state shall enter into any treaty, alliance, or
confederation... coin money, emit bills of credit; make anything but gold or
silver coin a tender in payment of debts...
1791: First Bank of United States created
question of consitutionality:
supporter: first Secretary of the Treasury
Alexander Hamilton
opponent: first Secretary of State
Thomas Jefferson
Congress has power to:
1-8-18: to make all laws which shall be necessary and
proper for carrying into execution the foregoing powers, and all other
powers vested by this constitution in the government of the U.S.
First Bank of the United States
bank served as place of deposit for government funds
also served as regular private bank -- issued notes that were
redeemable for gold or silver
discipline on other banks: present their notes for redemption
battle over money
northeast: hard money -- stable value
west: easier money -- need for loans for development
(Kentucky)
Thomas Jefferson:
banks more to be feared than standing armies (opposed to issue of notes)
John Adams
-- every bill in excess of gold in its vaults represents nothing and is a
cheat on someone
opposition to discipline from first bank
1811: charter of First Bank of United States expires
is not renewed
number of state banks multiplied
-- big increase in note issue
1816: Second Bank of United States is created
1819: Panic of 1819 (first of great panics)
Second Bank of United States
president: Nicholas Biddle
arrogant / expanded to new branches
feud with president from 1829-1837:
Andrew Jackson
1836: Congress passes bill to renew charter --
Jackson vetos
Jackson: oppose monopoly power of bank
but he supported hard money -- paper money was instrument of
devil (confused)
1836:
Federal government requires that public lands be paid for with hard money
1837: Panic of 1837 (second)
1840s-1850s: estimated 7,000 different bank notes in circulation
some notes at discount
complicated --
wildcat banks
1857: Panic of 1857 (third)
1862:
Civil War
U.S. begins issuing greenbacks (paper money not backed by
precious metals) to help pay for war
Greenbacks
more than 450 million dollars is issued
regarded as temporary
Secretary of Treasury: Salmon Chase
1863: National Banking Act
tax on notes issued by state banks (effectively eliminating them)
National banks allowed to issue notes provided that they are backed up
with government bonds
Confederacy -
- hyperinflation
prices 90 times higher at end of war than at beginning
1870: Supreme Court rules that the issue of greenbacks was
unconstitutional
Chief Justice:
Salmon Chase
1871: Supreme Court rules that greenbacks were
constitutional
(reversing decision of 1870)
1873: Panic of 1873 (fourth)
1874: greenback party formed
strongest in...
west
in favor of expanded currency and opposed to resumption of gold payments
in exchange for greenbacks
(elected 14 members of Congress in 1878)
Greenback controversy
suppose gold price: $18 per ounce before greenbacks
now: print greenbacks, prices double
gold price on market: $36 per ounce
gold coins circulate at premimum along with greenbacks
if they redeem greenbacks for gold now ...
gold supply disappears very fast
what has to happen before they can redeem greenbacks?
price level falls after civil war
1879: Resumption of Gold payments
(Greenbacks could be exchanged for gold on demand)
bimetallic standard
1792: Coinage Act -
dollar defined as 371.25 grains silver
and 24.75 grains gold
(mint ratio of 15 to 1)
gold price: $17.68 per ounce; silver price $1.18
Free Coinage instituted
anyone bringing specified amount of metal to mint could have the metal
formed into coins
coins: ten dollar gold eagle (half eagles/quarter $)
silver dollars, half $, 1/4 $, dimes, half dimes
copper: cents, half cents
The name "dollar":
and the value of the coin was
adapted from a Spanish coin, the "Spanish Dollar"
which was circulated in the colonies.
The term dollar derived from a silver German coin (thaler)
first struck in 1518
bimetallic standard
could price of metal fall below its official mint price?
no -- could sell to mint at that price
could price of metal rise above its offical price?
not if you could melt down coins
bimetallic standard
only work as long as market price ratio stays 15:1
if it changes: one metal becomes more valuable on market
its coins are melted down and it disappears
late 1790s - early 1800s:
market ratio of gold price to silver make gold more valuable on market /
gold coins disappear
effectively a silver standard
1834: dollar devalued in terms of gold
- now dollar defined as 23.2 grains of gold (mint ratio between gold
price and silver price now 16 to 1)
gold price: $18.86 per ounce
now - gold is relatively more valuable at mint
effectively a gold standard
1859:
Nevada Comstock Lode discovered -- begin new trend of silver
price declining relative to gold price
1873:
free coinage of silver ended
no significant opposition
dollar now defined exclusively in terms of gold (gold standard)
mid 1870s:
accelerating development of Nevada silver mines
if still bimetallic standard ...
silver coins would be brought to mint
free silver movement
1878: Bland-Allison Act
requires limited Treasury department purchases of silver, using silver
certificates
1884: Panic of 1884 (fifth)
1890: Panic of 1890 (sixth)
1890: Sherman Silver Purchase Act
1893: Panic of 1893
1893: Sherman Silver Purchase Act repealed
1896: "Cross of Gold" William Jennings Bryan
Bryan
"You shall not press down upon the brow of labor this crown of thorns; you
shall not crucify mankind upon a cross of gold."
(Bryan lost Presidential elections in 1896, 1900, and 1908).
July 17, 1897: Seattle
steamer Portland: ton of gold
Gold Rush
new gold discoveries in Alaska, S. Africa allowed
money supply to expand even with gold standard
1907: Major panic;
National Monetary Commission established -
its recommendations lead to establishment of Federal Reserve
1914: Federal Reserve System begins operations
WWI: gold flows to US: other nations leave gold standard
1921: recession
1920s: prosperity
stock market
banks lend money for stock market purchases
10 percent margin
Fed Reserve supported banks with funds
rise in stock prices / bubble effect
tulip bubble - 1600s'
South Sea stock bubble -
crash of 87
crash
Thur Oct 24, Tue Oct 29, 1929
Federal Reserve let money supply fall by 1/3
--memory of hyperinflation
--personality clash with NY Fed. Pres. Strong / died 1928
by 1932 -- prices had fallen by about 1/3
wave of bank failures --
4,000 in 1933
mid 1929 -- 25,000 commercial banks
down to only 15,000
Bank Holiday
declared March 6, 1933
president:
Franklin Roosevelt
Depression
1933: Glass-Steagall Act:
establish FDIC (deposit insurance)
prohibit payment of interest on demand deposits
1933: price of gold raised to $35 per ounce;
U.S. citizens forbidden to hold gold except for ornamental
purposes
1946: Bretton Woods
conference; establish system of fixed exchange rates
1971: inflation
U.S. gold stock falls to $10 billion;
U.S. devalues dollar:
by raising price of gold to $38 per ounce;
U.S. stops converting dollars into gold
1973: U.S. raises official price of gold
to $42.22 per ounce
Floating exchange rates come into effect;
end of Bretton Woods system
1975: end of prohibition against U.S. citizens holding gold
1970s: period of high inflation
(especially 1974 and 1979)
1979: Paul Volcker
announces new Federal Reserve policy :
more control will be exerted over monetary
1980: market price of gold rises above $800 per ounce
1980: (DIDMCA)
Depository Institutions Deregulation and Monetary Control Act
phase-out of interest rate ceilings on deposits begins;
all depositary institutions required to meet reserve requirements
1982: Garn-St. Germain act passed,
providing further decontrol
S&L crisis
1989: (FIRREA)
Financial Institutions Reform, Recovery, and Enforcement Act