Money And Interest: The Evolution Of Money

2363 Words5 Pages
bulb-icon

Recommended: History of money

Interest was generated as the outcome of transactions between borrowers and lenders, one of the earliest financial activities that have ever appeared in human history. However, the functionality of interest is developed by the evolution of money, an idea that in fact appeared later than interest. The modernization of money and interest never takes a monotonous path: sometimes it breeds financial prosperity, but the next time it may bring catastrophe. As with fire, economists and policymakers throughout the history keep monitoring and intervening in money and interest, trying to grasp these tools but not get hurt. People interpret underlying signals sent by interest and implement monetary policies to boost economies and avoid aberrations.
Past …show more content…

As a result, the abstraction of money made its first step; however, the “reproductive interest” lagged behind and led to the first financial crises. The appearance of coinage made it more convenient to do transactions—people didn’t need to carry whole bunches of products to trade face to face; coinage, rather than specific products, was more universally accepted in trades; and compared with other products with immeasurable values, the intrinsic values of coinage made from metal, such as gold and silver, were more stable. These advantages began the abstraction of money, changing money from the terminals of transactions in the calf case to the media of trades for the first …show more content…

As a result, interest rates not only show the temporal value of money, but also works as a tool to get the functionality of money realized. Since the beginning of the abstraction of money, coinage has benefited transactions through its loose tie to value/products. This is the idea of fiat money, paper money made legal tender by government decree. A formal gold standard was established in 1821, when the value of fiat money was defined in terms of gold. However, nobody realized that it adumbrated the dusk of connection between money and its intrinsic value. When the expansion of gold reserve grew more slowly than that of national economy, the existing amount of money, which was based upon the gold reserve, couldn’t satisfy the needs of increasing transactions. As a result, this contraction of money shackled the economic growth. Therefore, the gold standard was abandoned after the Great Depression in the

Show More
Related

  • William Harvey Prophet Of Monte Ne Sparknotes

    1132 Words  | 3 Pages

    After moving to Chicago, Harvey established a printing press and published a weekly magazine called “Coin”. Although his printing company was unsuccessful, he wrote and published a series of inexpensive books called “Coin’s Financial School,” dedicated to the idea of replacing gold with silver as the monetary system. These books not only gave Harvey the nickname he would be known as for the rest of his life, b...

    Read More

  • American Colossus The Triumph Of Capitalism Summary

    1553 Words  | 4 Pages

    He states that the financial system was based on competing state banks with no central bank which promoted a rapid economic growth. As the American banking system developed the money supply developed with it. The federal government began the banking system through the issuing of specie but as the capitalist system developed the banking structure developed as well. During the Civil War, the North printed Greenbacks that drove gold from the domestic circulation to help pay for war necessities. The Greenbacks, however, were rarely used in the South expressing the different economies of the North and the South at the time of the Civil War. With differing economies and the growth of specie and paper money, Brands argues that the basis of knowledge about the money system of this time lays a foundation for how Carnegie, Rockefeller, and others were able to manipulate the market and gain wealth. Leading into price manipulation by those in corporate

    Read More

  • Analysis Of Money By Dana Gioia

    438 Words  | 1 Pages

    money.In the line “To be made of it !” Gioia uses a hyperbole by referring to rich people as being

    Read More

  • America in Crisis: The Panic of 1893

    1178 Words  | 3 Pages

    As the new century approached, a national crisis began to develop in the United States. The nation faced a severe depression, nationwide labor unrest and violence, and the government’s inability to fix any of the occurring problems. The Panic of 1893 ravaged the nation and became the worse economic crisis of its time. The depression’s ruthlessness contributed to social unrest and weakened the monetary system’s strength, leading to a debate over what would be the foundation of the national currency. As the era ended, the US sought to increase its power and strength.

    Read More

  • The Currency Act Caused the American Revolution

    1391 Words  | 3 Pages

    Ernst, Joseph Albert. Money and politics in America, 1755–1775; a study in the Currency act of

    Read More

  • The Purpose of the Federal Reserve System

    2699 Words  | 6 Pages

    Friedman, Milton and Jacobson Schwartz, Anna. A Monetary History of the United States, 1867-1960. Princeton, 1963

    Read More

  • Post-Revolutionary America

    224 Words  | 1 Pages

    The economic elements of post-revolutionary America proved to be quarrelsome. The economic issues tended to be mostly between debtors and creditors, resulting from the lack of specie, silver, and gold currency. “Stay laws” and “Tender laws” were created to help farmers recover from debt, by allowing them to pay with goods rather than hard currency, and protected their farms from foreclosure. Merchants, clearly, generally opposed these policies. The spokesmen of the debtors suggested that the government had an obligation to use paper money to ease the currency shortage, but by increasing the money supply inflation was encouraged as well. As long as the government didn’t flood the market with paper currency, ultimately decreasing the value, debtors

    Read More

  • How Does Money Change Over Time

    417 Words  | 1 Pages

    Later, people used coins to pay for things. That was easier, because people knew how much the coins were worth.

    Read More

  • Andrew Jackson and the Bank War

    2332 Words  | 5 Pages

    In addition to the powerful coordination the Bank possessed, it influenced interest rates for loans to the working class and the rate of inflation in the nation. Because of the use of various bank notes, variegating from bank to bank due to the lack of national currency and mixture of specie, people trusted that each bank would be able to “cash in” their bank note for specie. This did not always hold true, but the Second Bank of the United States was the most trusted of the banks to supply specie in exchange for their bank notes. Because of this most people, in order to protect themselves from losing money, would exchange state bank notes for notes issued by the Second Bank. However, this meant that the Second Bank could threaten the state banks by demanding more gold, which might cause for their bankruptcy. As a result, the state banks were pressured into not being able to over issue their bank notes, which inevitably decreased their importance and power in the nation by decreasing the circulation of their bank notes. This was the greatest argument posed by the leaders of the state banks against the Second Bank of the United States (Roughshod 2).

    Read More

  • Argumentative Essay On Bitcoin

    2950 Words  | 6 Pages

    Paper money is more complex. From 1900 through 1971 (with the exception of during World War I), the US dollar was backed by gold, meaning its value was legally defined by a certain weight of the metal. That ended in 1971, when Richard Nixon shocked the world by breaking the link to gold and allowing the dollar’s value to be determined by trading in the foreign exchange markets. The dollar is valuable not because it’s as good as gold, but because you can buy goods and services produced in the United States with it—and, crucially, it’s the only form the US government will accept for tax payments. Among the Federal Reserve’s many functions is allowing the issuance of just the right quantity of dollars—enough to keep the wheels of commerce well greased without slipping into a hyperinflationary crisis.

    Read More

  • Gresham's Law Essay

    1265 Words  | 3 Pages

    People always look for ways to make more money, and cheating out the coinage system was an easy way to do it back in the early history of money. There are a number of examples of governments reacting to bad money in the economy. One of them was the Great Recoinage of the late 17th century in England. Parliament decided saw the deterioration of England’s currency and decided to mint new coins and collect all of the old ones to recycle the metal. Citizens were forced to turn over any coins that had either been debased or clipped. This recoinage was a huge expense to the treasury, and as soon as the new coins were minted, they were exported, leaving mostly bad money in circulation. This was a major failure on England’s part by not paying attention to Gresham’s Law. Another example of Gresham’s law playing a part in a country’s economy, were the silver coins being circulated in the United States until the Coinage Act of 1965 was brought into law. The United States debased their coins by switching to cheaper metals, such as zinc and copper, thereby inflating the new debased currency. Citizens started to hoard the old silver coins, which contained 90% silver compared to the new ones which were only around 40% silver. They would hold on to them for their intrinsic value, and use the newly minted coins in their daily lives because of the lesser value. This led to the Hunt Brother’s, Nelson and William’s,

    Read More

  • The History of Money and Banking

    1178 Words  | 3 Pages

    The invention of money was a major improvement in peoples’ lives. In the past, people usually had to travel all day to find the person who is willing to exchange their goods. In addition, the goods people want to exchange did not have the standard value of measurement. This led to unequal exchanges. Furthermore, it is not convenient to carry heavy goods from one place to another for an exchange. To solve these issues, money will be the only solution. Later, people tend to develop money from cowry shells to credit cards for the convenience and to improve their society.

    Read More

  • Inflation And Inflation Essay

    1766 Words  | 4 Pages

    Today, couple of monetary forms are completely upheld by gold or silver. Subsequent to most world monetary standards are fiat cash, the cash supply could increment quickly for political reasons, bringing about inflation. The

    Read More

  • Essay On The Dollar

    942 Words  | 2 Pages

    In early 1942, two monetary reform plans oppose each other: the plan of the American Harry Dexter White, Assistant Secretary of the U.S. Treasury, and the plan of the famous British economist, John Maynard Keynes. White’s monetary plan suggests exchanging all foreign currencies to the dollar while pegging the value of the dollar to a fixed price for gold. Keynes meanwhile suggests to create a supranational central bank beyond both the gold standard that the hegemony of one currency. The international currency, defined by gold, would have been called “bancor”.

    Read More

  • The Importance Of Money In Modern Life

    841 Words  | 2 Pages

    Even though it is the 21st century, we, the people sheltered on this planet Earth, pay due respect to living as well as to lifeless things. The importance all of us give to money is quite high. Long ago, after the limitations of the Barter system were felt, money was introduced as an effective medium of trade and transaction. From then onwards money gradually became indispensable to our survival. During the 19th century, the popularly known quotation was “Survival of the Fittest.” Equally true is the statement, ‘Survival of the Richest.’ The richer the people, the fitter they were for survival. This holds true even today. Hence the desire to accumulate money and wealth. The desire to amass wealth has increased manifolds in recent times. Philosophers

    Read More

More about Money And Interest: The Evolution Of Money

Open Document