Fairy tales have always been used to give lessons about life. The story of Jack and the Bean Stalk is a good lesson about the importance of knowing about money and banks. While you might think that you know the story of Jack, go to Jack and the Beanstalk , from Old Fairy Tales.
In this lesson you will list the roles and functions of money, apply the definition of money to various alternatives to money, and describe the role of banks.
The story of Jack asks the question, "What is money?" An old quote in economics is, "Money is what money does." In other words we know gold coins are money but beans are not, but why?
For something to be accepted as money it must perform three functions. It must be:
- A Medium of Exchange
- A Unit of Account
- Store of Value
What is meant by these three functions?
First, for money to be a medium of exchange everyone has to accept that "it" is money. A gold coin is money because everyone will take it in trade for goods and services. In some ancient cultures, shells were used as money. Do you think Pokemon cards are money? (Can you pay for your lunch with Pokemon cards?)
Next, money must be a unit of account. This means that it can be broken up into parts and that other goods can be priced terms of money. That is why we have, pennies, dimes, quarters and dollars. If money is not a unit of account then it becomes hard to trade fairly. For instance, how many Pokemon cards equal a cow? Money allows a shop to price its goods, so you pay $.65 for a quart of milk and $2.00 for a dozen donuts. You can also check in other stores to see what prices they charge and then buy at the store with the best price.
Finally, money must be a store of value. If we are to hold money, we must know that it will be worth something tomorrow. Pokemon cards may be a good value today, but how much will they be worth when the Pokemon craze calms down? Apples are another good which do not make good money. If you hold onto an apple for two years would anyone want it? This is why most money is make out of metal or paper.
Answer the following questions after reading the story of Jack and the Beanstalk above.
What did Jack’s mother ask Jack to trade in exchange for the cow?
Why did Jack’s mother not like the trade which Jack made?
Why are beans not money, given the functions of money above?
- What is the opportunity cost of not having money to trade with?
Functions of the Bank
A bank has a number of functions as well. One is to protect your money from being robbed. The first banks were run by Blacksmiths and Goldsmiths. Why do you think that they made good bankers?
A second function is to lend money to others and receive interest in return. Banks make lending and borrowing money easier, just like money makes trading easier. The bank works as a clearinghouse. Those who want to lend money but deposits into their saving accounts, while those who want to borrow go to the bank and take out loans. The bank then makes sure that the loans are paid back and that everyone pays the right amount of interest.
Jack and the Bean Stalk can also be considered as a story of a bank.
Answer the following questions:
How is planting beans in the ground similar to putting money in the bank?
What is the justification given for Jack to "steal" from the Giant in this story: (Jack and the Bean Stalk
If Jack’s father had put his money in the bank how would that have changed the story?
- How is the goose that lays the golden eggs like a bank?
Using the answers to the questions above write a short paper on how the story of Jack and the Bean Stalk is related to money and banks.