GRADE LEVEL: 9-12

TOPIC / SUBJECT MATTER: Economics, Finance, History

TIME ALLOTMENT: 2-3 45-minute class periods

OVERVIEW:
Using video segments from the PBS series THE ASCENT OF MONEY, this lesson teaches high school students about the role of banks both in history and the present day. Students will learn about key financial concepts that contributed to the evolution of banks. Those concepts will then be applied to modern banks and the services they provide. As a culminating activity, students will be introduced to the concept of creditworthiness.

LEARNING OBJECTIVES

By the end of this lesson, students will be able to:
• Define the terms “credit” and “interest”
• Explain the evolution of money lending to banking
• Detail the role of modern banks and the services they provide
• Analyze criteria banks use to determine creditworthiness
• Understand the roots of the modern banking system
• Recognize how personal choices and decisions affect one’s creditworthiness

STANDARDS

National Standards for Economics
Standard 4: Role of Incentives

• People respond predictably to positive and negative incentives.

Standard 5: Gain from Trade

• Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations.

Standard 10: Role of Economic Institutions

• Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems, and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and enforced property rights, is essential to a market economy.

Standard 11: Role of Money

• Money makes it easier to trade, borrow, save, invest, and compare the value of goods and services.

Standard 12: Role of Interest Rates

• Interest rates, adjusted for inflation, rise and fall to balance the amount saved with the amount borrowed, which affects the allocation of scarce resources between present and future uses.

MEDIA RESOURCES
VIDEO

Clip 1:

Establishing Credit, Earning Interest

Clip 2:

Borrowing Time

Clip 3:

First Bank of the Medici

Access the streaming and downloadable video segments for this lesson at the Video Segments Page.

WEBSITES
CitiFinancial: Resource Center: All About Credit
http://www.citifinancial.com/resourcecenter/allaboutcredit_lender.php
This Web site from Citibank details criteria for granting a loan or issuing a credit card.

What’s Up in Finance? It Costs What?! Credit Card Primer
http://www.thirteen.org/finance/games/itcostswhat_creditcard.html
In this learning interactive from THIRTEEN, users learn about the basics of using credit cards.

What’s Up In Finance? It Costs What?! Case Files
http://www.thirteen.org/finance/games/itcostswhat_casefiles.html
In this learning interactive from THIRTEEN, users read about and understand different ways of dealing with credit card debt.

MATERIALS

For each student:
• Creditworthiness Student Organizer (PDF) (RTF)
• Weekend Trip Invitation (PDF) (RTF).

For each pair/group of students:
• Chart paper and markers
• Computer with access to internet

For the class:
• Creditworthiness Student Organizer Answer Key (PDF) (RTF)
• Bank Services Answer Key (PDF) (RTF)
• Computer with access to internet
• Projector and screen

PREP FOR TEACHERS

Prior to teaching this lesson, you will need to:

Preview all of the video segments and Web sites used in the lesson.

Download the video clips used in the lesson to your classroom computer, or prepare to watch them using your classroom’s Internet connection.

Bookmark the Web sites used in the lesson on each computer in your classroom. Using a social bookmarking tool such as del.icio.us or diigo (or an online bookmarking utility such as portaportal) will allow you to organize all the links in a central location.

Make copies of the Student Organizers.

Next: Proceed to Activities

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

1. Introduce the lesson by asking students if they have a savings or a checking account at a bank. Ask students if there are any other bank services that they have used? Ask students to think of the different services that banks provide. Write these services in a list on the board or a piece of chart paper. (Answers may include: checking accounts, savings accounts, CDs, special incentives like free student checking, or a “Keep the Change” program, credit cards, debit cards, insurance, currency exchange, money transfers, mortgages, home equity loans, refinancing, investments, mutual funds, auto loans, boat loans, student loans, business loans.)

2. Go through the list you have created of bank services with the class. One by one, review what each service involves, and decide if it involves money lending (the bank giving money to the customer or account holder) or not (the customer or account holder giving their own money to the bank). Review the Bank Services Answer Key (RTF) (PDF) for answers.

3. Divide the class into two groups, Consumers and Lenders. Distribute chart paper to each group. Ask the Consumers to think about the reasons they would want to use the bank services listed. Ask the Lenders to think about the reasons why banks would want to provide these services. Give the groups 10 – 15 minutes to discuss and list their answers on the chart paper.

4. Bring the two groups together and discuss each group’s answers as a class. (Reasons for Consumers should include: safety & security, convenience of payment, access to cash, earning interest, incentives to save. Reasons for Lenders should include: providing services for customers, helping people achieve financial goals, helping to generate economic activity, access to capital that the bank needs to provide loans, financial profit.)

5. As students can see, lending money is a huge component of the banking industry. Tell students that they are going to watch a video clip explaining the foundations of money lending. FRAME the first part of the clip, “Establishing Credit, Earning Interest,” by explaining to students that money lending is a risky endeavor, and the world financial system did not always have structures in place to guarantee repayment. Give students a FOCUS by asking them to note the root of the word “credit” as they watch the clip. PLAY Clip 1, PAUSE after “I believe.” FOLLOW UP by asking students for a working definition of “credit.” (The idea that you can lend money to someone and rely on them to pay it back at a later date.) Ask students how the concept of credit affects the consumer in bank services and transactions? How does it benefit the lender?

6. FRAME the second half of the clip by explaining that even with the trust established by credit, banks or money lenders still need assurance that their loans will be repaid, as well as compensation for their services as lenders. Give students a FOCUS by asking them to note a definition of “interest” as they watch the rest of the clip. PLAY the rest of “Establishing Credit, Earning Interest.” FOLLOW UP by reviewing the definition and writing it on the board. (Interest: the amount paid to the lender over and above the sum lent.) Ask students how the concept of interest affects both consumers and lenders in bank services and transactions?

7. Discuss with students the impact that credit and interest went on to have in the world of trade. Ask students:
• Why do you think credit and interest were essential to overseas trade? (Enabled people to have to money and goods they needed to trade)
• How is this same concept reflected in money-lending practices today? (Credit cards or loans enable people to buy things even if they don’t have the cash to buy them)
• How do the concepts of credit and interest, as incorporated into banking and money lending, help to stimulate economic growth? (Giving people credit means giving more loans which provides more work for lenders and more money in the system, increased revenue for lenders in the form of interest, and the creation of banking jobs as people want loans handled by professionals.) Give one example of how you think it may have stimulated growth in medieval times, and one example of how it works today. (Answers will vary.)

LEARNING ACTIVITY 1

1. Explain to students that with credit and interest as the foundation of international finance, it became possible for more advanced financial services to develop. Explain that in the Middle Ages, when the banking system as we know it began to evolve, the practice of lending money at interest was restricted to Jewish moneylenders.

2. FRAME Clip 2 , “Borrowing Time,” by asking if any of the students are familiar with the Shakespeare play “The Merchant of Venice.” Ask for (or provide, if students are not familiar with the play) a brief synopsis. (In “The Merchant of Venice,” Jewish moneylender Shylock lends money to Antonio, asking for a pound of flesh if the loan is not repaid. Explain that this play and the character of Shylock both reflected prevailing attitudes and helped to perpetuate many anti-Semitic stereotypes about Jews and money.) Give students a FOCUS by asking them to think about the following questions as they watch the clip:
• How were Jews set apart from other residents of Venice?
• What service was only provided by Jewish merchants? Why?
PLAY ”Borrowing Time.” FOLLOW UP by reviewing the questions and asking students for their answers. (1. They had to wear yellow “O”s or hats, and were confined to the ghetto nuovo. 2. They could lend money at interest; it was a sin for Christians to do so.) You may wish to explain to students that while the Christian church had declared usury to be a sin, the Jewish faith took a different perspective. Biblical interpretations suggest that the Old Testament declared that while Jews cannot lend at interest to other Jews, they are allowed to do so to non-Jewish people – therefore when Jewish merchants lent charged interest to Christians, it was not considered a sin.

3. Discuss with students why they think the Jewish merchants and moneylenders were so hated by the Christians. (Possibly because the Jews were engaged in a practice they considered to be a sin.) If the Christians were so opposed to the Jews, why did they still go to them for loans? (Likely because it was still necessary for Christians to obtain loans for business and trade.) Why didn’t the Christians just lend money to each other without interest? (Based on what students know about interest, it is not beneficial to the lender to give a loan without interest, so the Christians were probably reluctant to do so.)

4. FRAME Clip 3, “First Bank of the Medici,” by telling students that elsewhere in Italy, money lending was moving out of the ghettos, and was adopted by Christians as banking. One extremely wealthy family in Florence, the Medicis, adapted and revolutionized the established practices of banking. Give students a FOCUS by asking them to think about the following questions as they watch the clip:
• How did the Medicis enter into banking, if money lending at interest was a Christian sin?
• How did they earn revenue from bank services?
PLAY “First Bank of the Medici.” FOLLOW UP by reviewing the answers to the questions. (1. Earning money on foreign currency exchange. 2. Commission on currency conversions; funds to compensate for risking money deposited – rewarding credit with discreetly concealed interest payments.)

5. Lead students in a discussion about how banks may have transitioned from less formal organizations (merchants sitting on benches in the town square) to today’s reliable financial intermediaries.

LEARNING ACTIVITY 2

1. Ask students to make a list of the services that early banks provided, based on what they saw in the video. (Lending money, currency exchange, discretionary payments.) Compare and contrast this with the list of services that modern banks provide. What is the same? What has evolved or changed? What do they do now?

2. Tell students that a popular and accessible form of credit today comes in the form of a credit card. Ask students (either individually, or in pairs or small groups) to log on to the It Costs What?! Credit Card Primer, read through the information about credit cards, and take the quiz at the end. Give students a FOCUS by asking them to come up with a brief description of what credit cards are, how they work, and how interest relates to credit card use. Give students 5 – 10 minutes to review the site and come up with their answers.

3. When students have finished, ask for a couple of individuals or pairs/groups to share their descriptions. (Answers will vary, but should include: credit cards are a way to borrow money from a bank or other organization. When you make charges on a credit card, you are effectively taking out a loan from the bank for that amount. This loan must be repaid, and if you don’t pay your balance in full you will be charged interest on your debt to the bank. Interest is the cost of borrowing money from the bank.)

4. Ask students: how do credit and interest, in the form of a modern credit card, compare with the early forms of credit and interest they saw in the medieval Italian banks? What is the same? (People are accountable for their loans from the bank, and must pay interest on their debts.) What is different? (Technology has advanced, early on interest was perceived as a way to insure lenders against risky investments).

5. Distribute the Weekend Trip Invitation (PDF) (RTF) to students. The invitation describes a scenario where a friend has gotten a credit card, and is inviting the student on an expensive weekend trip; however, this hypothetical friend has little to no understanding of credit. Ask students, either in class or as a homework assignment, to write an email response to their friend explaining how credit and credit cards work, why banks are interested in lending money, what the friend should consider/think about, and least one historical example of banks and lending.

CULMINATING ACTIVITY

1. Ask students if they have ever lent money to a friend or someone close to them. What were some of the pros and cons of that experience? (Answers will vary but should address levels of trust between the borrower and the lender.) How did you, as the lender, benefit from that situation (if at all)?

2. Ask students if they would think of charging interest to a friend. (Likely not, but perhaps if the friend is unreliable, or they don’t expect the friend to be timely in their repayment of the loan.) Ask students how they would decide whether or not to loan money to a friend. Would they lend money to the hypothetical friend with the new credit card? (Answers will vary, but may include how much money the friend makes, how reliable they are in other areas, etc.)

3. Tell students that in order to give any kind of loan – be it a small business loan, credit card, home equity loan, etc. – the lender has to determine the borrower’s ability to repay the loan, or creditworthiness. Explain that throughout history, money lenders and banks have established different criteria for determining a borrower’s creditworthiness. Ask students to come up with some examples of what criteria they think medieval banks would have used to establish creditworthiness. (Answers will vary, but may include: how much money the borrower’s family had, how much land the borrower owns, what kind of trade the borrower engages in.)

4. Tell students that banks today have well-defined criteria for how they recognize a borrower’s creditworthiness. Divide students into pairs or small groups. Ask each pair/group to visit the Citibank “5 Cs” website. Explain that this website is an example of how one particular bank defines creditworthiness.

5. Explain to students that while these criteria can be a good indicator of creditworthiness, unfortunately being creditworthy alone does not always guarantee good use of loans or credit. Have the pairs/groups students log on to the Case Files section of “It Costs What?!” in a separate browser, and answer the questions based on the information.

6. As a FOCUS while reading and reviewing these websites, distribute the Creditworthiness Student Organizer (RTF) (PDF) to each student. Ask students to complete the Organizer as they learn about creditworthiness from the two websites, listing at least three examples of Responsible Credit Behavior and Irresponsible Credit Behavior that would apply to each of the five criteria listed on the Citibank website. Give students 15 – 20 minutes to complete the activity. When students have finished, ask for volunteers to share their answers with the class.

GRADE LEVEL: 9-12

TOPIC / SUBJECT MATTER: Economics, World History, Personal Finance

TIME ALLOTMENT: Three to four 45-minute class periods

OVERVIEW:
In this media-enhanced lesson utilizing clips from the PBS series THE ASCENT OF MONEY, students will be introduced to the concept of insurance and the role it has played in determining the world’s political and economic landscape since its inception in the 18th century. An Introductory Activity will explore students’ own attitudes toward insurance, asking whether they regard it as a right or a privilege.

The Learning Activities will begin by explaining the origins of the modern insurance fund, with an online activity to help students understand the law of averages upon which insurance is founded. The expansion of insurance from a privately purchased (and often unaffordable) privilege to a state-sponsored right is explored through the narrative of modern Japan, whose militaristically motivated pre-World War II policies of universal health care helped lay the foundations for the postwar “welfare state”—a socialistic model that came to be widely adopted throughout much of the industrialized world. Finally, the history of modern Chile is used to illustrate how some of the inherent shortcomings of the welfare state came to be addressed—for better or worse—by a return to a system of privatized, capitalistic insurance which has come to define much of modern economic conservatism.

A Culminating Activity asks students to compare and contrast the insurance systems of several different nations based upon what they’ve learned throughout the lesson about the relative pros and cons of varying approaches.

LEARNING OBJECTIVES

By the end of this lesson, students will be able to:
• Explain how the first modern insurance fund was created
• Define Bernoulli’s Law of Averages
• Describe the origins and foundations of the modern welfare state
• Describe the shortcomings of the welfare state and how they have been addressed by Milton Friedman and other conservative economists
• Compare and contrast the insurance systems of several modern nations

MEDIA RESOURCES
VIDEO

Clip 1:

Who Bears The Risk?

Clip 2:

The Birth of Insurance

Clip 3:

From the Cradle to the Grave

Clip 4:

Trickle Down Economics

Access the streaming and downloadable video segments for this lesson at the Video Segments Page.

WEBSITES
Ken White’s Coin Flipping Page
http://shazam.econ.ubc.ca/flip/
A simple site demonstrating Bernoulli’s Law of Averages through a coin-toss simulator.

The Uninsured in America: The U.S. vs. Other Nations
http://www.pbs.org/newshour/indepth_coverage/health/uninsured/international.html
A PBS “Online Newshour” site featuring a comparative breakdown of health insurance systems in six different countries.

STANDARDS

National Standards for Economics
Standard 4: Role of Incentives

• People respond predictably to positive and negative incentives.

Standard 10: Role of Economic Institutions

• Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems, and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and enforced property rights, is essential to a market economy.

Standard 15: Growth

• Investment in factories, machinery, new technology, and in the health, education, and training of people can raise future standards of living.

Standard 16: Role of Government

• There is an economic role for government in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income.

Standard 17: Using Cost/Benefit Analysis to Evaluate Government Programs

• Costs of government policies sometimes exceed benefits. This may occur because of incentives facing voters, government officials, and government employees, because of actions by special interest groups that can impose costs on the general public, or because social goals other than economic efficiency are being pursued.

Standard 19: Unemployment and Inflation

• Unemployment imposes costs on individuals and nations. Unexpected inflation imposes costs on many people and benefits some others because it arbitrarily redistributes purchasing power. Inflation can reduce the rate of growth of national living standards because individuals and organizations use resources to protect themselves against the uncertainty of future prices.

Standard 20: Monetary and Fiscal Policy

• Federal government budgetary policy and the Federal Reserve System’s monetary policy influence the overall levels of employment, output, and prices

National Standards for History
World 5-12 Standards

Era 7 – An Age of Revolutions, 1750-1914

Standard 5D
The student understands transformations in South, Southeast, and East Asia in the era of the “new imperialism.” Therefore, the student is able to:

• Analyze Japan’s rapid industrialization, technological advancement, and national integration in the late 19th and early 20th centuries.

Standard 6A
The student understands major global trends from 1750 to 1914. Therefore, the student is able to:

• Assess the importance of ideas associated with nationalism, republicanism, liberalism, and constitutionalism on 19th-century political life in such states as Great Britain, France, the United States, Germany, Russia, Mexico, Argentina, the Ottoman Empire, China, and Japan.

Era 8 – A Half-Century of Crisis and Achievement, 1900-1945

Standard 1A
The student understands the world industrial economy emerging in the early 20th century. Therefore, the student is able to:

• Explain leading ideas of liberalism, social reformism, conservatism, and socialism as competing ideologies in the early 20th-century world.

Standard 2B
The student understands the global scope, outcome, and human costs of the war. Therefore, the student is able to:

• Analyze the role of nationalism and propaganda in mobilizing civilian populations in support of “total war”
• Assess the short-term demographic, social, economic, and environmental consequences of the war’s unprecedented violence and destruction

Era 9 – The 20th Century Since 1945: Promises and Paradoxes

Standard 1A
The student understands major political and economic changes that accompanied post-war recovery. Therefore, the student is able to:

• Explain how the Western European countries and Japan achieved rapid economic recovery after World War II.
• Analyze connections between the political stabilization of Western European societies and the Marshall Plan, the European Economic Community, government planning, and the growth of welfare states.

Standard 2B
The student understands how increasing economic interdependence has transformed human society. Therefore, the student is able to:

• Compare systems of economic management in communist and capitalist countries and analyze the global economic impact of multinational corporations.

Standard 3A
The student understands major global trends since World War II. Therefore, the student is able to:

• Analyze causes of economic imbalances and social inequalities among the world’s peoples and assess efforts made to close these gaps.

MATERIALS

For each student:
• Computer with internet access and audiovisual projection system
• Blackboard or whiteboard
• “Who Should Pay?” Student Organizer (PDF) (RTF)

PREP FOR TEACHERS

Prior to teaching this lesson, you will need to:

Preview all of the video segments and Web sites used in the lesson.

Download the video clips used in the lesson to your classroom computer, or prepare to watch them using your classroom’s Internet connection.

Bookmark the Web sites used in the lesson on each computer in your classroom. Using a social bookmarking tool such as del.icio.us or diigo (or an online bookmarking utility such as portaportal) will allow you to organize all the links in a central location.

Make copies of the “Who Should Pay?” Student Organizer.

Next: Proceed to Activities

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

1. Ask if anyone would like to volunteer a definition of what insurance is. (Answers will vary.) Explain that all types of insurance are essentially contracts—a promise from the insurer of compensation for specific potential future losses (of life, health, property, or almost anything else) in exchange for a periodic payment from the insured. It is a calculation of risk on behalf of both parties. Tell students that over the next few class sessions they will be learning about insurance and the role it has played in world history, economics, and politics using clips from the PBS series THE ASCENT OF MONEY, hosted by Niall Ferguson.

2. For the first clip, provide students with a FOCUS FOR MEDIA INTERACTION by asking which three options Ferguson offers for “deal[ing] with the risks and uncertainties of the future?” WATCH Clip 1, “Who Bears the Risk?”

3. Review the focus question: What are the three options Ferguson suggests for who should bear the risks of the future? (1 – The individual, by purchasing private insurance; 2 – the community, through voluntary charity; 3 – the state, through compulsory taxes.)

4. Distribute the “Who Should Pay?” Student Organizer (PDF) (RTF). After explaining that there are no “correct” answers, give students a few minutes to read the organizer’s list of expenses commonly incurred over the course of a lifetime and mark on the organizer—according to the options established by Ferguson—which ones they feel should be 1) paid for by the individual, 2) paid through charity, or 3) paid for by the government. When students have completed their organizers, ask for a show of hands indicating how they categorized each expense, asking students who responded differently to explain why they feel as they do. Tabulate the results on a blackboard or whiteboard, also noting the results on your own copy of the organizer. Ask the class what they think the results say about their collective politics and philosophy? (Accept all answers.) Put your own copy of the organizer aside for later use in the lesson’s Culminating Activity.

5. Explain that disagreement about how various types of insurance should be paid for is one of the defining aspects of the political landscape both within the United States and the world at large. Explain that those who tend to favor Option 1 probably regard insurance as a privilege to be purchased like any other service, whereas those who tend to favor Option 3 probably regard insurance as a right of citizenship—if not a right of humanity itself.

LEARNING ACTIVITIES

1. Ask students what they currently do (or should be doing!) to prepare for future financial needs? (Most will answer that they save money.) Explain that saving is indeed the oldest method of providing for the future, and that it is still a basic element of modern economics, but that insurance is a more recent financial invention that puts a more profitable twist on saving for the future by introducing the element of risk. Tell students that they will now be looking at a clip that explains the origins of the modern life insurance fund. Provide a FOCUS FOR MEDIA INTERACTION by asking students how Robert Wallace and Alexander Webster’s Scottish Ministers’ Widows and Orphans Fund worked. PLAY Clip 2 “The Birth of Insurance.” PAUSE the clip a little more than 3 minutes in, after Professor Ferguson says “…the widows and orphans henceforth would be paid out of the returns on that money, leaving the premiums to accumulate.”

2. Review the focus question: How did Robert Wallace’s and Alexander Webster’s Scottish Ministers’ Widows and Orphans Fund work? (Premiums were paid by the insured into the fund, which was then invested by the insurers for profit; payments were made from the returns on the investment, leaving the premiums to accumulate.) Tell students that this remains the basic premise for insurance companies to this day, including Scottish Widows—the present day incarnation of Wallace and Webster’s original fund.

3. Explain that all types of insurance are essentially contracts—promises from the insurer of compensation for future losses (of life, health, property, or almost anything else) in exchange for a periodic payment (or “premium”) from the insured. Insurance can also be described as a type of gamble—a calculation of risk and probability in which both parties bet against each other: the insured weighs the possibility (or relative imminence) of possible losses against the certainty of paying premiums over time, while the insurer makes exactly the opposite wager. Premium rates are set based upon the insurer’s calculation of the insured’s risk—the higher the risk, the higher the premium. Provide students with a FOCUS FOR MEDIA INTERACTION for the remainder of the clip by asking them what Professor Ferguson means when he says that “size matters” in calculating insurance risk? PLAY Clip 2 through to the end.

4. Review the focus question: What does Professor Ferguson mean when he says that “size matters” in determining insurance risk? (The more people who pay into an insurance fund, the easier it is to predict how much will need to be paid out.) Ask students why they think this is? (Accept all answers.)

5. Have students log on to the “Ken White’s Coin Flipping Page” (available at http://shazam.econ.ubc.ca/flip/). Ask students what the statistical probability of a flipped coin landing heads up is. (50%) Have each student predict whether a tossed coin will turn up heads or tails, and then have each student flip a coin. Ask how many students predicted incorrectly? (Probably around half the class.) Explain that this is a pretty high rate of unpredictability—you certainly wouldn’t want to bet your life (or life savings) on it!

6. Next, have each student flip 10 coins and ask how many got within 10% of an even split (i.e. between 4 and 6 heads results)? (This will probably be well over 50%.) Finally, have each students flip 100 coins and ask how many got within 10% of the statistical average (i.e. 40 to 60 heads results)? (This will probably be closer to 100 %.) Have students note the almost exact split between heads and tails between the many millions of coins flipped on “Ken White’s Coin Flipping Page” since the site was established in 1995 (these numbers are given on each flip results page). Ask students why they think this is so? (Accept all answers.) Explain that this “law of averages”—also known as Bernoulli’s Law—states that a large number of independent measurements of an uncertain quantity tends toward the theoretical average of that quantity; in other words, the larger the number of measurements, the more precisely average the results. Explain that this law of averages is more than a game of nickels and dimes—it’s a fundamental principle of the entire world’s insurance economy.

7. Ask students what possible problems they might detect in a premiums-based system of private insurance such as Wallace and Webster’s Scottish Ministers’ Widows and Orphans Fund. (Accept all answers.) Tell students that they will now be looking at a clip that examines the primary shortcoming of private insurance: not everyone can afford it! Provide students with FOCUS FOR MEDIA INTERACTION by asking them how Japan addressed this problem, and why. PLAY Clip 3 “From the Cradle to the Grave.” PAUSE clip about 3 minutes in, after Ferguson says: “The wartime slogan ‘all people are soldiers’ was adapted to become ‘all people should have insurance.’”

8. Review the focus question: How did Japan address the issue of insurance affordability, and why? (It “nationalized” insurance—i.e. had the government pay for it—with the aim of creating a large and able-bodied population of soldiers and workers to help realize its imperial ambitions.) Ask students what they think this policy led to? (Answers will vary, but should mention Japan’s defeat and near destruction in World War II.) Explain that very similar policies of nationalized insurance were adopted by other nations of this era—including Nazi Germany—for similar militaristic reasons.

9. Tell students that the next part of the clip will explain why the end of Japan’s “warfare state” was just the beginning of what would become known as the “welfare state.” Provide students with a FOCUS FOR MEDIA INTERACTION by asking them what economic lesson the Japanese and other exhausted combatants drew from the wreckage of World War II? RESUME PLAYING Clip 3. PAUSE after another 3 minutes, after Ferguson says “and when they died, the state would pay their dependents.”

10. Review the focus question: What economic lesson did the Japanese and other exhausted combatants draw from the wreckage of WWII? (They determined that the modern world was too dangerous and unpredictable for private insurance, so risk had to be nationalized. A minimum standard of living for all citizens “from the cradle to the grave” would be guaranteed by the state, including education, unemployment, health care, retirement, and death benefits.) Explain that this policy of “nationalization” is also commonly understood as a form of “socialism,” and that it was a system adopted not only in Japan, but throughout much of the western world after World War II.

11. Ask students what they think would be the pros and the cons of this modern “welfare state.” (Accept all answers.) Provide students with a FOCUS FOR MEDIA INTERACTION for the remainder of the clip by asking them what Professor Ferguson believes was the fatal flaw of the modern welfare state. PLAY Clip 3 through to the end.

12. Review the focus question: What does Professor Ferguson believe was the fatal flaw of the modern welfare state? (That the safety net of the welfare state stifled the incentives and disincentives of capitalism: reward for industriousness and hardship for idleness.) Explain that the result was “stagflation”—low growth combined with high inflation—while welfare states’ treasuries were steadily drained by “entitlement” payments to citizens who had come to expect government insurance as a right.

13. Explain that in the 1970s, Chicago economist Milton Friedman proposed a solution that was first tested in Chile, which had been bankrupted in part by the welfare state benefits offered under the recently deposed communist regime. Provide students with a FOCUS FOR MEDIA INTERACTION by asking them what Friedman’s economic advice was for Chile’s new right wing military dictator, General Augusto Pinochet. PLAY Clip 4 “Trickle Down Economics.” PAUSE after Ferguson says “Friedman found himself denounced for acting as a consultant to a military dictator, responsible for the executions of over 2,000 real and suspected communists, and the torture of over 30,000 more.”

14. Review the focus question: What was Friedman’s economic advice for Chile’s new leader, General Augusto Pinochet? (Cut governmental budget deficit—i.e. government spending—to control inflation, then running at 900%.) Explain that Freidman’s economic theory was based on the principle that government spending increases the money supply, which in turn increases inflation. Tell students that despite Friedman’s political condemnation for having worked with the brutal Pinochet, he was eventually awarded a Nobel Prize in economics for the success of his economic theory—commonly known as “Monetarism.”

15. Provide a FOCUS FOR MEDIA INTERACTION for the next part of the clip by asking students how Friedman’s Chilean protégé Jose Panera took Friedman’s principle of smaller government a step further. PLAY Clip 4 from where it was previously paused. PAUSE after Ferguson says that “in the 20 years since 1987, the Chilean stock market has gone up by a factor of 18.”

16. Review the focus question: How did Friedman’s Chilean protégé Jose Panera take Friedman’s principle of smaller government even further? (By effectively replacing the national retirement pension system with private retirement plans, in which a portion of an employee’s paycheck is paid into his or her personal account, which then is invested for profit in the market.) Ask students if they think this was successful? (Accept all answers, but encourage an understanding that Chile’s economy, built around a new middle class of private pension owners created by Panera’s reform, has prospered.)

17. Ask students if Panera’s system of private retirement pension funds invested for profit reminds them of anything they’ve learned about earlier in this lesson? (Wallace and Webster’s original Scottish Ministers Widows and Orphans fund.) What was the central failing of Wallace and Webster’s brand of insurance? (Not everybody could afford coverage.) Explain that Chile’s system—like that of many nations, including the United States—essentially has the same shortcoming: not everyone has a full-time job that offers a pension or benefits, so many have neither.

18. Explain that Professor Ferguson doesn’t consider modern Chile’s lack of universal pensions to be a major problem; like Friedman and Panera, he believes that Chile’s rapidly growing economy—largely driven by private retirement pensions—ultimately benefits everyone. Explain that this “free market” economic philosophy of smaller government and greater privatization of services and industry was embraced (at least in principle) by conservatives in other nations, notably Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States. Modern economic conservatism came to be defined in the 1980s by the notion that “a rising tide floats all boats” (i.e. a strong economy benefits both rich and poor), and its corollary of “trickle-down economics” (in which the prosperity of the wealthy “trickles down” to benefit the middle class and the poor).

19. Explain that this view is vehemently opposed by many other economists and policy-makers, who argue that this free-market philosophy is fundamentally unjust—widening the disparity between rich and poor and failing to provide what they regard as basic socioeconomic rights of citizenship. They also argue that the market is an unreliable guarantor of pensions, health care, and other forms of social insurance—a view that many feel has been validated by the 2008 collapse of worldwide financial markets, which has wiped out many pension funds.

20. Ask students to discuss which economic philosophy they agree with: 1) the “small government,” free market, anti-welfare state approach that regards pensions, health care, and other types of “social security” as privileges to be paid for by the individual, or 2) the “big government,” regulated welfare state approach that regards pensions, health care, and other types of social security as basic rights of citizenship? (Accept all answers, encouraging discussion and debate while emphasizing that there is no “right” or “wrong” answer.)

CULMINATING ACTIVITY

1. Divide the class into five groups, and have each group log on to “The Uninsured in America: The U.S. vs. Other Nations” website. Assign each group one of five nations featured on the site—Canada, China, Japan, Mexico, or the United Kingdom. Allow 20 minutes for each group to read the website and compile a brief report comparing and contrasting the relative strengths and weaknesses of the insurance model of their assigned nation with that of the United States.

2. Give each group five minutes to present their findings to the rest of the class. Encourage discussion of the pros and cons of each system.

3. Ask the class which system they consider the most “free market?” Which is the most nationalized? What might the nature of a nation’s health care system say about that nation’s culture and society as a whole? Have the class vote on which nation’s system of insurance they consider the best. Why? (Accept all answers.)

4. Pull out your copy of the “Who Should Pay” Student Organizer, and review for the class their earlier tabulated responses from the Introductory Activity. Based on those responses, ask students which of the five national systems they’ve been looking at most closely resembles their own collective attitudes to insurance? (Accept all answers.) Ask if anyone would now respond differently to the Student Organizer based on what they’ve learned in this lesson? If so, why?

5. As a supplementary homework assignment, have each student write a brief research paper on the nation they were assigned earlier in class, focusing on how that nation’s history may have shaped its approach to healthcare.

Who Bears The Risk?
A primer on to the three basic approaches to insurance: private, public, and charitable.
(View full post to see video)

The Birth of Insurance
How and why the world’s first life insurance fund was created in 18th century Scotland.
(View full post to see video)

From the Cradle to the Grave
Japan’s nationalized insurance policy—from its imperial, militaristic origins to the first modern welfare state.
(View full post to see video)

Trickle Down Economics
The crisis of the Chilean welfare state and its replacement by a more conservative, capitalistic system.
(View full post to see video)

Downloadable QuickTime versions of the video segments:
(Note: To download a video, right-click on the video title and click “Save Link As…” or “Save Target As…” On a Mac, press the CTRL key and simultaneously click the mouse, then save the link.)

Clip 1: Who Bears The Risk?

Clip 4: Trickle Down Economics

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

GRADE LEVEL: 9-12

TOPIC / SUBJECT MATTER: Economics, World History

TIME ALLOTMENT: Two 45-minute class periods

OVERVIEW:
In this media-enhanced lesson utilizing clips from the PBS series THE ASCENT OF MONEY, students will be introduced to the concepts of companies, the ownership shares offered by some companies to increase capital and distribute profits and risks, and the stock markets in which such shares are publicly traded as investments.

In an Introductory Activity, students will identify and describe the familiar companies which constitute today’s Dow Jones Industrial Average—the world’s primary index of stock performance. In the Learning Activities, students will explore the origins of companies and stock markets in 17th century Holland, learn about basic dynamics of “bull” and “bear” markets, and test their own investment savvy in an interactive stock market simulation. As a Culminating Activity, students will be asked to research the history and performance of one of the Dow Jones Industrial Average companies they identified in the Introductory Activity.

Ideally, this lesson will be integrated into a unit on basic economics covering the concepts of companies, stocks, stock markets, and the laws of supply and demand.

LEARNING OBJECTIVES

Students will be able to:
• Define and describe the thirty companies whose collective performance constitutes the Dow Jones Industrial Average.
• Explain the reasons behind the emergence of the world’s first publicly traded company and stock market.
• Describe the process by which overvalued markets can “crash” and cite examples from recent history.
• Define key terminology related to companies, stocks, and stock markets.

MEDIA RESOURCES
VIDEO

Clip 1:

Birth of the Stock Market

Clip 2:

Shock Markets

Access the streaming and downloadable video segments for this lesson at the Video Segments Page.

WEBSITES
Play the Market
http://www.pbs.org/wgbh/nova/stockmarket/virtual.html
A PBS-produced interactive simulation of stock investing.

Dow Jones Industrial Average Timeline
http://www.stockcharts.com/charts/historical/images2/DJIA1900.gif
A chart of Dow Jones Industrial Average’s performance throughout the 20th century.

STANDARDS

National Standards for Economics
Standard 7: Markets – Price and Quantity Determination

• Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services.

Standard 8: Role of Price in Market System

• Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives.

Standard 14: Profit and the Entrepreneur

• Entrepreneurs are people who take the risks of organizing productive resources to make goods and services. Profit is an important incentive that leads entrepreneurs to accept the risks of business failure.

National Standards for History
World 5-12 Standards

Era 6 – The Emergence of the First Global Age, 1450-1770

Standard 1
How the transoceanic interlinking of all major regions of the world from 1450 to 1600 led to global transformations.

Standard 2
How European society experienced political, economic, and cultural transformations in an age of global intercommunication, 1450-1750.

MATERIALS

For the class:
• Computer with internet access and audiovisual projection system
• “Taking Stock” Student Organizer Answer Key (PDF) (RTF)

For each group:
• Computer with internet access

For each student:
• “Taking Stock” Student Organizer (PDF) (RTF)

PREP FOR TEACHERS

Prior to teaching this lesson, you will need to:

Preview all of the video segments and Web sites used in the lesson.

Download the video clips used in the lesson to your classroom computer, or prepare to watch them using your classroom’s Internet connection.

Bookmark the Web sites used in the lesson on each computer in your classroom. Using a social bookmarking tool such as del.icio.us or diigo (or an online bookmarking utility such as portaportal) will allow you to organize all the links in a central location.

Next: Proceed to Activities

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

1. Distribute a copy of the “Taking Stock” Student Organizer to each student. Starting at the top, ask the class which larger industry each company is part of—i.e. what type of goods it produces or services it offers. Have students note each correct response on their organizers, and search online for unfamiliar companies.

2. Once the class has completed the organizer, inform them that the economic performance of these thirty companies are used to determine the Dow Jones Industrial Average (DJIA)—the most commonly used index of the New York Stock Exchange (NYSE). Explain that the NYSE—where shares in these thirty companies are publicly traded among investors—is the world’s largest stock market. Because their various industries span most forms of activity in our economy, these thirty companies’ performance is used as a benchmark for determining the relative health of the stock exchange as a whole and the economy more generally. Explain that when people refer to the stock market being “up” or “down,” they are generally referring to the DJIA.

3. Explain to students that in the course of this lesson they will be learning more about companies, stocks, and the stock market through clips from the PBS series THE ASCENT OF MONEY, hosted by Professor Niall Ferguson.

LEARNING ACTIVITES

1. Explain that companies generally start as a vision of one or more “entrepreneurs”—resourceful and enterprising individuals who often have little aside from a “business model”—i.e. an innovative plan for producing profits. Tell students that they will now be watching a video clip about the world’s first true company. Provide a FOCUS question by asking: What was the Dutch spice merchants’ entrepreneurial business model in the late 17th century? PLAY CLIP 1, “Birth of the Stock Market.” PAUSE about 40 seconds into the clip, after Ferguson says “The Dutch plan was to fetch them the longer but quicker way—by sea.”

2. Review the focus question: What was the Dutch spice merchants’ entrepreneurial business model in the late 17th century? (Rather then bringing the spices from Asia overland, they would ship them by sea.) Explain that many ambitious business models like this one require capital resources—generally cash or credit—beyond those of individual entrepreneurs. Provide students with a FOCUS for the next part of the clip by asking them why these spice traders found it necessary to pool their resources and form partnership companies. RESUME playing CLIP 1. PAUSE after about one minute, after Ferguson says “The result was around six fledgling East India enterprises.”

3. Review the focus question: Why did Dutch spice traders find it necessary to pool their resources and form partnership companies? (The sea voyage to and from the spice producing regions of Asia was so prolonged and dangerous that the expense and risk of such voyages had to be shared among the merchants.) Explain that a basic principle of joint ownership in a company is that both profits and risks are pooled and shared by all partners.

4. Ask students if anyone knows what an “IPO” is. (IPO is an acronym for “Initial Public Offering,” referring to a company’s first offering of “stock” to the general public.) Ask students what “stocks” are. (Stocks are ownership shares of a company sold by that company.) Ask students why they think a company’s original partners would want to share ownership with additional shareholders? (The potentially unlimited capital raised by the sale of stock allows a company to expand its business beyond the limited resources of the original partners.) Provide a FOCUS for the remainder for the clip by asking how the world’s first true stock market came into existence. RESUME playing Clip 1 through to the end.

5. Review the focus question: How did the world’s first true stock market came into existence? (After an offering to the general population of shares—the first “IPO”—the newly consolidated United Dutch East India Chartered Company declared that these shares could not be returned to the company for a refund, but only sold to another investor. The brisk market for these highly profitable shares became the world’s first stock market.) Ask students if they are familiar with the laws of supply and demand to which Ferguson refers at the end of the clip. (Accept all answers.) Explain that it is an economic model which concludes that in a competitive market, price fluctuates to equalize the quantity demanded by consumers and supplied by producers, resulting in an economic equilibrium.

6. Asks students if they think that the law of supply and demand guarantees a stable market? (Accept all answers.) Provide students with a FOCUS question for the next video clip by asking: Who coined the term “irrational exuberance” and what does it mean?
PLAY Clip 2: “Shock Markets.” Review the focus question: Who coined the term “irrational exuberance” and what does it mean? (Former Federal Reserve Chairman Alan Greenspan coined the term to describe the “collective euphoria” and unwarranted optimism that investors often demonstrate when they invest in the ultimately unpredictable stock market.) Explain that history has shown time and again that investors seeking to profit from a strong—or “bull” market—often ignore signs that the stocks they’re buying have become overvalued. A key principle of investing is to “buy low and sell high,” but when all prices are rising it can be difficult to know exactly what “low” and “high” prices are. Moreover, when investors sell stocks which they think have peaked in value, it can spark a “sell-off” which, if widespread enough, can trigger a weak “bear” market.

7. Divide students into groups of 4-5. Have each group log on to “Play the Market” (http://www.pbs.org/wgbh/nova/stockmarket/virtual.html) and tell them to click “Trade Traditional Stocks” in the bottom right corner of the window to start the game. Explain that each group will assemble their own collection of investments—or “portfolio”—from some combination of the four imaginary stocks offered. They can then modify this portfolio according to market changes they will learn about by clicking on the “News Flash” button in each 2 week turn of the 16 week simulation. Also point out that each group is also free to keep some or all funds in the “bank” at 4% interest rather than purchasing stocks. Explain that the point of the exercise is to increase the value of one’s portfolio as much as possible. Allow 20 minutes for the groups to play through the simulation.

8. Ask each group to share the simulation’s final evaluation of their portfolio performance (found by clicking the “Evaluation” button on the simulation’s last screen). Which group performed best, and why? Which group performed worst, and why? Would any group have been better off keeping all their money in the bank? Did any group invest heavily in YeeeeeHaw.com when it was performing well, only to see the value of their stock plummet later on? Explain that similarly high expectations of unproven technology stocks fueled the “dot-com boom” of the late 1990s, when Mr. Greenspan made his famous observation that investors were deluding themselves through “irrational exuberance.” Explain that as with the simulation’s fictional YeeeeeHaw.com stock, many real technology stocks plummeted in the “dot-com crash” around the turn of the 21st century.

9. Explain that the stock market crash of September 2008 and the ensuing financial crisis—largely based on overvalued real estate investments—dwarfed the dot.com crash. Many experts are in fact comparing it to the crisis of October 1929 that precipitated the Great Depression of the 1930s. Explain that while the stock market fluctuates minute to minute and day to day, broad trends can be discerned over time.

10. Have each group to log onto the “Dow Jones Industrial Average Timeline” (http://www.stockcharts.com/charts/historical/images2/DJIA1900.gif), which depicts the Dow Jones Industrial Average’s performance over the past century. What general trend can be discerned? (Overall growth over time; periods of fast growth interspersed with periods of relative stagnation.) Ask if anyone can make a correlation between a major event or period in history and significant gains or losses in the market? How, for instance, did the market respond to the December 1941 attack on Pearl Harbor, and the string of Allied defeats which followed? What about the 1973-4 Arab Oil Embargo? The terrorist attacks of September 11, 2001? During which presidential administrations did the stock market climb? During which did it fall?

CULMINATING ACTIVITY

1. As homework, assign each student in the class to write a brief research report on one of the companies listed on the “Taking Stock” Student Organizer. Important questions to be addressed should include: What was the original business model of the company’s entrepreneurial founders? How much time passed from the company’s creation to its IPO, and why was an IPO necessary? When was it chosen to become on of the thirty companies which determine the Dow Jones Industrial Average? How has the company’s stock performed throughout its history? Has it been affected by current events in the past ten years?

2. During the next class period, have students divide into their previously established groups of 4-5 and present their findings to each other. Within each group, have certain companies prospered while others have suffered? Have certain events affected some companies more than others?

Birth of the Stock Market
An overview of the origins of the company and the stock market in 17th century Holland.
(View full post to see video)

Shock Markets
A brief description of the volatility of stock markets.
(View full post to see video)

Downloadable QuickTime versions of the video segments:
(Note: To download a video, right-click on the video title and click “Save Link As…” or “Save Target As…” On a Mac, press the CTRL key and simultaneously click the mouse, then save the link.)

Clip 1: Birth of the Stock Market

Clip 2: Shock Markets

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

Establishing Credit, Earning Interest
Root of credit, definition of interest
(View full post to see video)

Borrowing Time
History of Jewish moneylenders
(View full post to see video)

First Bank of the Medici
Evolution of Medici banks.
(View full post to see video)

Downloadable QuickTime versions of the video segments:
(Note: To download a video, right-click on the video title and click “Save Link As…” or “Save Target As…” On a Mac, press the CTRL key and simultaneously click the mouse, then save the link.)

Clip 1: Establishing Credit, Earning Interest

Clip 2: Borrowing Time

Clip 3: First Bank of the Medici

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

Is Property the Route to Wealth?
Property ownership has not solved the problem of global poverty.
(View full post to see video)

Microfinance
Microcredit puts loans in the hands of low-income entrepreneurs.
(View full post to see video)

Downloadable QuickTime versions of the video segments:
(Note: To download a video, right-click on the video title and click “Save Link As…” or “Save Target As…” On a Mac, press the CTRL key and simultaneously click the mouse, then save the link.)

Clip 1: Is Property the Route to Wealth?

Clip 2: Microfinance

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.