Economic Institutions

Economic institutions such as banks evolved to help people meet their goals. Think about when you were young. You wanted that certain baseball card that your friend had. He said it was yours if you gave him two of your cards. You traded or bartered to meet the goal of getting the card you wanted.

Surprisingly, this is how economic institutions began. The New York Stock Exchange (where billions of dollars are exchanged every day) “started out as a dirt path in front of Trinity Church in East Manhattan 200 years ago. At that time, there was no paper money changing hands, or even the idea of stocks. Rather, they traded silver for papers, saying they owned shares in cargo that was coming in on ships every day. The trade flourished.”

Source: http://library.thinkquest.org/3088

Let’s look at a few of these institutions that have had an effect on our economic system.

Banks
Banks are economic institutions that allow people to save money and earn interest on it, or to borrow money and pay the bank interest on the money they are using. Alexander Hamilton, secretary of the treasury, instituted the first central bank in 1791 through a Congressional charter. In 1832, states took over the banking business. They were required to have enough gold or silver on hand to pay a note issued by the bank. By 1860, there were over 10,000 different kinds of notes. Counterfeiting was common. It was impossible to tell which notes were real, so many banks failed.

There was an outcry for uniform money that could be used anywhere. This brought about the National Currency Act of 1863 and the National Bank Act of 1864. This brought a centrally controlled monetary system, which works well.

The Federal Reserve System is the central bank of the United States. Its main office is in Washington, but there are 12 regional offices around the country. Its main duties are to regulate banking and to maintain stability in the banking system. President Woodrow Wilson signed the Federal Reserve Act in 1913 after much debate in Congress.

“During the American Revolution, the Colonial Government needed money to fund its wartime operations. One way they did this was by selling bonds. Bonds are pieces of paper a person buys for a set price, knowing that after a certain period of time, they can exchange their bonds for a profit. Along with bonds, the first of the nation’s banks started to sell parts or shares of their own companies to people in order to raise money. In essence they sold off part of the company to whomever wanted to buy it, which is the essence of the modern-day stock market.” Source: http://library.thinkquest.org/3088

Stock Market
Stocks are shares in a business that people can buy or sell. People invest in stocks and make other investments to stay ahead of inflation and to reach financial goals.

Inflation
Inflation is the general rise in prices. This means that $50 today may buy fewer things than the same $50 could buy five year ago.

Legal System
A big step in making the economic system run smoothly was the making of legislation that assured people that they could make investments in property or business and they would get the rewards of the use of that money. The legal system passed laws that guaranteed that contracts would be honored and corporations could engage in business transactions with the support of the legal system.

Labor Unions
The labor unions began as a reaction to poor working conditions. The factory system became more and more important after the Civil War. Long hours of work and low wages caused workers to band together to improve conditions.