This week the
most interesting knowledge I gained from my EC 202 and want to share is the
history of money. During the class I knew that there are mainly two type of
money in the past, “Commodity Money”, “Fiat Money”.
This is the
first forms of money. Typically, it is something that has value in itself other
than its use as money. Here are some interesting example. The money for the first
governor of Tennessee was deerskins. Early settlers in Virginia used tobacco as
money. Cigarettes as money in P.O.W. camps and prisons.
But commodity
money has its own drawbacks. It may not has some desirable properties like
standardized quality (easy to see that two units are the same), durable (little
or no loss of value due to spoilage), valuable relative to its weight (easy to
carry around), and divisible (so that many different prices are possible). For
example we cannot let bread be commodity money, because it will be spoiling if
we don’t keep in it in a dry and cold place.
Just like
deerskins are cumbersome to carry around. Also precious metal shave often
served as money, but there is an incentive to try to pass off impure as pure.
For example, gold’s value is different by its purity. Another big problem with
commodity money is controlling the supply. We cannot imagine what will happened
if a new gold field is found by a private person.
This is sometimes
in the past banks or governments have issued paper currency with a promise that
it could be redeemed for gold or silver. So the main difference between the
money in nowadays is no government promises to redeem paper money for gold.
Compare with commodity money, fiat money is easier to carry around and protect
from theft and has no intrinsic value. It can still work as money, very well,
as long as people have faith in its value.
Today,
paper currency is “fiat money”, “by decree”. For example US dollars are “Federal
Reserve Notes”.
More information to click here:
Citation:
Mankiw, Brief Principles of Macroeconomics, 7th edition
Great post. The pictures really helped to illustrate examples of commodity money and you did a great job comparing the two types of currency discussed in the post and some of the drawbacks of commodity money.
ReplyDeleteGreat post. The pictures really helped to illustrate examples of commodity money and you did a great job comparing the two types of currency discussed in the post and some of the drawbacks of commodity money.
ReplyDeleteImages give readers some ideas about the topic. I think you are a little bit overusing the content of the textbook, it would be better if you explain some of the concepts based on your own understanding, but still it is an attracting blog for me to read.
ReplyDeleteThank you for visit!
DeleteThis is very interesting! It's crazy how something a lot of people take for granted has such long history! I really enjoyed how you added pictures to every description, it was informative as well as fun to look at!
ReplyDelete