Wednesday 805

 Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 10 Money and Prices in the Long Run

Chapter 29 of 36 The Monetary System

Section 2 of 22

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When you eat at a restaurant, whether you pay by cash or check, the restaurant owner is happy to receive these pieces of paper.

Paper money has no value in itself such as a silver coin.

But the restaurateur is confident some third person in turn will accept it in exchange for something the restaurateur values.

That third person is also confident some fourth person and so on will accept the paper money.

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The use of money for transactions is extremely useful in a large, complex society.

If there was nothing in the economy widely accepted in exchange for goods people would have to rely on barter, which is exchanging one good for another, to obtain things they need.

An economy that relied on barter would have trouble allocating scarce resources efficiently.

In a barter economy trade requires the double coincidence of wants, the unlikely occurrence where two persons each have goods the other person wants.

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Money makes trade easier.

The restaurateur does not care whether you can produce and trade a good valuable to him.

He is happy to accept your money, knowing other people will also accept it.

As money flows from person to person it facilitates production and trade.

This allows each person to specialize in what they do best, creating specialization which raises everyone's standard of living.

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Here we will examine the role of money in the economy, we will discuss

· what money is

· the various forms of money

· how the banking system creates money

· how government controls the quantity of money in circulation

We will examine how changes in the quantity of money affects

· economic variables including inflation, interest rates, production, and employment

· the long-run and short-run economy

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the banking system creates money

ginkō shisutemu wa okane o umidasu

銀行システムはお金を生み出す

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What is the first known use of paper money? ChatGPT:

The first known use of paper money occurred in China.

During the Tang dynasty (618–907), merchants began using paper certificates called “flying money” instead of transporting heavy strings of copper coins.

These were mainly deposit receipts or money-transfer documents rather than fully circulating currency.

The first true circulating paper currency was the jiaozi, introduced by private merchants in Sichuan around 1000–1010, during the Northern Song dynasty.

The Song government later took control of its issuance and made it official paper money.

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What was used for money in England in the 1000s? CGPT:

In England during the 1000s, the principal money was the silver penny.

Anglo-Saxon kings —and, after 1066, Norman kings— issued pennies through numerous local mints.

The monetary system was calculated as:

12 pennies = 1 shilling.

20 shillings = 1 pound.

240 pennies = 1 pound.

However, shillings and pounds were mainly accounting units, not actual coins.

Most physical coins were pennies.

For smaller purchases, pennies could be cut into halves or quarters.

The shilling did not become a regularly minted English coin until the sixteenth century.

Barter, payment in agricultural goods, and informal credit were also common, especially in rural areas, but taxes, rents, wages, and larger transactions were increasingly calculated in silver pennies.

Paper money was first used in England in the 1660s as goldsmiths’ deposit receipts, while the Bank of England began issuing banknotes in 1694.