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. The story of Jack asks the question, "What is money?"
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 .
- List the roles and functions of money.
- Apply the definition of money to various alternatives to money.
- Describe the role of banks.
Jack and the Bean Stalk: This site provides the story of "Jack and the Bean Stalk."
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 excepted 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 made 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?
[Jack's mother asked Jack to trade gold coins in exchange for the cow so that they could buy other goods like food.]
Why did Jack’s mother not like the trade which Jack made?
[Jack's mother did not like the trade because beans can not be traded for goods they would need in the future: beans do not meet the three functions of money.]
- Why are beans not money, given the functions of money above?
What is the opportunity cost of not having money to trade with?
[There are a number of opportunity costs. The most important is that you will lose the time finding someone who wants what you have to trade and will trade you something that you want.]
[1. It is not a unit of account because most stores will not take beans in trade for other goods. 2. It might be a unit of account since it is easily divisible, but there is no national standard for how many beans equal a cow. 3. It is not a store of value since the beans will rot.]
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? [Since they were usually the strongest person in a village, they would hide the money under their anvils so no one could steal the money or gold.]
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?
[Planting beans is like investing in the bank, after time you end up with more beans than you started with.]
What is the justification given for Jack to "steal" from the Giant in this story: (Jack and the Bean Stalk ) ?
[The Giant in one of the stories has killed Jack’s father and taken his money. If Jack’s father had put his money in the bank then the Giant could not have stolen all that Jack had.]
If Jack’s father had put his money in the bank how would that have changed the story?
[It would have changed the story because Jack’s mother would have had money to live on and they would not have had to sell their cow for the beans.]
How is the goose that lays the golden eggs like a bank?
[The goose lays eggs at regular intervals just like interest payments. The purchase of the goose is like the initial money put into a bank, while the eggs represent interest.]
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.