Unit 2: The Hierarchy of Money
This unit dives into the claims of Perry Mehrling's paper "The Inherent Hierarchy of Money" (2012). It demonstrates how monetary hierarchy evolved over eight centuries using gold as its origins. It examines the hierarchy of money and explains monetary hierarchies as dynamic systems. Mehrling's paper presents a three-layered monetary system where gold, currency, and deposits represent the first, second, and third layers of money. It explains how the monetary system is a hierarchy of monetary instruments, financial institutions, and balance sheets. This unit discusses the importance of counterparty risk, clearance, settlement, liquidity, and cash in examining monetary systems.
Completing this unit should take you approximately 1 hour.
2.1: Modern Accounting
This subunit covers the mathematical works of Fibonacci and Pacioli. Europe discovered double-entry accounting and balance sheets from their work and developed a continental monetary system. This subunit discusses the Medici banking network and how bills of exchange became the first global credit instrument. It also further examines the concept of world reserve currency.
2.2: Layered Money
This subunit examines "the hierarchy of money": how the monetary system consists of a hierarchy of monetary instruments, financial institutions, and balance sheets. It defines counterparty risk and explains how it affects monetary systems. Fractional reserve lending and the expansion and contraction of credit are also covered. The subunit introduces and explains disciplinary constraints. This subunit's reading gives the background of the layered money framework.
2.3: Traveling Between Layers of Money
This subunit discusses the implications of monetary hierarchy on liquidity and cash. It covers the layers of money, bank runs, and financial crises. It also covers clearance and settlement as part of the evolution toward central banking.
Unit 2 Review and Assessment
- Receive a grade