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Evolution of Paper Money & Commercial Banking in U.S.

THE EVOLUTION OF PAPER MONEY AND COMMERCIAL BANKING IN THE UNITED STATES THROUGH 1865

The introduction of paper money in England accompanies the transition of the economy from feudalism to capitalism. The move away from the manorial production system was brought about in part because of a recognition that some goods could be bought from town sources more cheaply and in better quality than similar goods could be produced on the manors. This recognition led to a desire to produce more efficiently on the manor, so that something of exchange value would be available to acquire these outside goods. Eventually, this recognition led to a system in which more permanent stores of value, such as money, were exchanged, as opposed to exchanging perishable or quickly consumable goods. The increased use of money led to a development of a banking system in England. The needs of a growing industrial sector, together with the availability of money, led to the development of credit markets. Credit markets were highly dependent upon paper documents to represent monetary value. Eventually, paper money per se evolved.

Paper money, bonds, and other paper representations of monetary value were brought to the American Colonies from England. Prior to the American Revolution, the money and banking system in the American Colonies generally reflected English systems and practices.

Subsequent to the American Revolution, banking in the United States developed "concurrently with the growth in population, agriculture and manufacturing output, and transportation facilities" in the country (Fenstermaker, 1965, p. 4). Prior to 1791, there existed little need for commercial banks in the United States because of the relatively low-level of overall economic activity in the country (Fenstermaker, 1965, p. 4).

Paper money and bonds were created by both the Congress and the several states during the Revolutionary War (Be...

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Evolution of Paper Money & Commercial Banking in U.S.. (1969, December 31). In LotsofEssays.com. Retrieved 11:38, September 18, 2014, from http://www.lotsofessays.com/viewpaper/1690556.html