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Economic Literacy: An Economical Way to Enhance the Social Studies Curriculum

by Forrest Fonnesbeck

Introduction
Basic Economic Principles
Lesson for Introducing Basic Economic Concepts
Analyzing a Historical Event from American History Using Economic Principles
Lesson Plans and Web Sites
Conclusion



INTRODUCTION

This essay will discuss how the social studies instructor can enrich and improve an existing social studies curriculum by infusing economic concepts into a state social studies core curriculum. Since the majority of the states' social studies core curricula contains economic standards, adding economic concepts will help meet those core goal objectives.

When teachers implement instructional strategies and resources to achieve curricular objectives, student learning improves. If we teach to the core, the students will benefit. If we implement and infuse economic content into the existing core curriculum, we move closer to the goal of achieving economic literacy.

Economic literacy is generally described as having the skills to make rational decisions about the economy. We, as individuals and as a society, must make decisions about the allocation of resources by analyzing our needs and wants and by weighing the costs and benefits of our life choices. Being economically literate empowers the individual, the community, and our nation to make choices based not only on the benefits received, but also on the marginal costs of alternatives.

When students have an understanding of economic concepts, the social studies curriculum becomes more meaningful. I vividly recall my first years as a United States history and geography teacher in southern Idaho, when I attempted to explain the reasons behind the opposition to a particular tariff. I had problems explaining to students why anyone would want inflation to occur. Furthermore, I was not prepared to address economic influences on social and political change, which constitute a major portion of the study of history.

My feelings of inadequacy in explaining the economic content of various historical themes drove me to seek assistance. I called the state education department for help. They referred me to their Center for Economic Education, as well as to the state's Council on Economic Education.

Over the next few months, I attended several workshops and economic education classes at the center. Once I was able to grasp economic concepts, I knew that I could improve the quality of my instruction. I knew that I had become a more effective educational resource. I developed a passion for promoting economic education, which eventually led me to obtain an advanced degree in economic education.

History records and explains our collective experience. History should include an explanation of the causes that shaped events, attitudes, and relationships among individuals and societies.

A single economic factor often motivates change: scarcity. Economic scarcity exists because our wants are unlimited but our productive resources are limited. This condition is both enduring and universal.

How people address scarcity is the primary cause of social change over time. People have made choices that initiated events, relationships, and even institutions that make up our collective past. Life is all about our economic positioning, and so is the study of the social studies.

BASIC ECONOMIC PRINCIPLES

I found that to increase the understanding of the social studies (United States history/geography), it helped to have students understand how economists approach a topic. In an article provided by the National Council on Economic Education and published in Business Week (10/4/99), the council identified six basic economic principles that would help students understand the past and present. These principles enable students to think like economists.

  • People choose.
  • People's choices involve costs.
  • People's choices have consequences for the future.
  • People respond to incentives.
  • People create economic systems that influence individual choices and incentives.
  • People gain when they trade voluntarily.

When these principles are used as an evaluation tool, students can better understand the geographical, social, political, and cultural environments in which we live. Here is a quick explanation of each principle.

People choose. Since our wants always exceed our productive resources (the concept of scarcity), we must make choices.

People's choices involve costs. When we make a choice or choose an alternative, then we must forego the next best choice. The cost of doing one thing prevents us from doing another.

People's choices have consequences for the future. Today's choices determine future conditions and issues. I believe that this concept forces us to be accountable for our actions. When receiving the benefits of choices made today, we must be willing to bear the costs in the future.

People respond to incentives. We are all motivated by our own self-interests. Individuals, institutions, and societies seek economic growth and well-being. We all want a larger share of the economic pie.

People create economic systems that influence individual choices and incentives. In every case, collective choices and incentives lead to an economic system through which people decide what to produce, how to produce, and how consumption will be shared.

People gain when they trade voluntarily. When free, unrestricted exchange takes place, value or wealth is created. Nations that trade will increase their economic well-being.

How can teachers infuse the core curriculum with these basic economic principles? Below is a core Utah standard from the course Geography for Life, a ninth grade required class. The core standard states: "Students will understand and demonstrate the geographical interconnectedness of history, political science, sociology, anthropology, and economics of world regions." One learning objective for this standard is "Explore why societies organize available resources for the production of goods and services." The student performance objective reflects the goal of the learning objective: "Illustrate how the unequal distribution of resources affects economic development and relationships."

The standard and objectives present the opportunity to infuse the instruction of absolute and comparative advantage into the core curriculum. Absolute and comparative advantage are the basic economic concepts upon which the voluntary trade principle is based.

As an introduction to the concepts, you might walk the class through the following scenario: Suppose that two isolated island nations (ABBA and ZARIN) exist somewhere in the Pacific Ocean. The people and islands are similar, but they may have different natural resources. Perhaps the human resources are not identical or different tools are needed for survival.

Both the island of ABBA and the island of ZARIN must produce one unit of fish and one unit of figs to survive each day. Every day, the islanders must work to produce the required amount of food. The illustration that follows identifies each island and the number of hours of productive activity that is needed to bring forth the required quantities of fish and figs.

Abba vs. Zarin

You can see that the island of ABBA can produce both fish and figs in fewer hours. This means that the island of ABBA has an absolute advantage in the production of both fish and figs over the island of ZARIN.

The AmosWEB Economic GLOSS*arama (a useful online economic glossary) provides us with the following definitions of absolute and comparative advantage:

"Absolute Advantage: The general ability to produce more goods using fewer resources. This idea of absolute advantage is important for trading that occurs between both people and nations. A nation can get an absolute advantage from an advanced level of technology or from higher quality resources. For a person, an absolute advantage can result from natural abilities or from the acquisition of human capital (education, training, or experience)."

The islanders of ZARIN produce neither figs nor fish as efficiently as do the islanders of ABBA. Should these two nations trade? Can the people of ABBA gain any economic well-being or growth from trading with the people of ZARIN? The answer is yes, most definitely—because of the economic concept of comparative advantage or, simply, focusing production on doing what you do best.

The AmosWEB glossary also provides the following definition of comparative advantage:

"Comparative Advantage: The ability to produce one good at a relatively lower opportunity cost than other goods. While…economists developed this idea for nations, it's extremely important for people. A comparative advantage means that no matter how good (or bad) you are at producing [goods or services], there's always something that you're best (or least worst) at doing. Moreover, because you can produce this one [good or service] by giving up less than what others give up, you can sell it or trade it to them. This idea of comparative advantage means that people and nations can benefit by specialization and exchange. You do what you do best, then trade to someone else for what they do best. Both sides in this trade get more and are thus better off after than before."

If each island did only what they did best, then the island of ABBA would produce only fish. They could produce the fish requirements of both islands in only 12 hours, and they would have a savings, or an increased opportunity, to increase fish production of two hours.

If the island of ZARIN produces only figs, they could provide enough figs for both islands in 20 hours. This is a savings to them of four hours. The two islands could trade one fish for one fig and use the saved hours to elevate their standard level of living by producing and consuming more of what each island does best. The economic standard of living is measured by the quantity of goods and services a people can use and consume.

If both islands specialize in the lowest-cost production alternative, will both islands gain any time they trade? Do you think these islands should trade? Does economic specialization foster interdependence among nations? These are questions answered by the voluntary trade principle.

A great way to extend the voluntary trade principle would be to retrieve an international trade lesson from the Foundation for Teaching Economics (FTE). The FTE is an educational foundation dedicated to introducing young people to an economic way of thinking. This organization provides teacher and student interactive programs, as well as teaching lessons, strategies, and learning resources all linked to nationally identified economic standards. The FTE has a lesson on international trade and voluntary exchange. Also at the FTE is a related lesson dealing with Protectionism.

LESSON FOR INTRODUCING BASIC ECONOMIC CONCEPTS

Here are some simple examples of how a teacher could introduce the basic economic concepts. Current events works well for economic education infusion, and since almost every social studies teacher deals with current events on a regular basis, this is an ideal way to work these ideas into a lesson.

For example, one current issue in southwestern Utah is whether to permit nuclear waste to be transported and stored locally. If we look at the principle introduced earlier says that people's choices have consequences for the future, we are better able to understand this controversial issue. Choices involve making decisions based on costs and benefits. The benefits gained by producing nuclear energy are greater for the power users when they do not have to bear the cost of storing the waste. But when part of the cost of production is shifted to the users (in order to have the waste stored outside the production area), the benefits received by the users no longer exceed the costs. Social and political issues will develop if people must absorb more costs than the benefits are worth. Planners at the nuclear plant must weigh all the costs and all the benefits.

A classic example of economic misunderstanding is the belief that the cause of the Great Depression was the stock market crash of 1929. In reality, that crash was much more of an economic effect of the depression rather than a cause. This assertion is easily recognized if one understands a basic economic concept known as a "circular flow of goods, services, and productive resources exchanged in markets." This idea states that consumption (consumer spending) on the part of individuals simultaneously provides income, to be spent later, for another group. Spending will create income. Income provides the ability to spend.

The Roaring Twenties was characterized by a period of rapid economic expansion fueled by the growth of the auto and related industries. Growth also came about due to the increased need for electrical power in the urban centers of America. This stimulated the demand for all types of household and entertainment appliances. Many of these new purchases were financed with installment buying. Throughout the decade, the debt load of consumers increased as credit expanded. And as consumer spending increased, industries produced more and more, providing more income to be spent. By the end of the 1920s, consumption slowed because of high debt loads.

As consumption slowed, inventories increased but sales and orders for production declined, as did corporate earnings. Quite simply, the industrial complex was producing more than people were buying. Industries had to cut production and lay off workers. As a result, incomes were reduced and consumers stopped spending. This vicious cycle repeated again and again. The bleak economic condition put tremendous downward pressure on stock prices and forced panic selling on those with margin accounts.

This trend was difficult to reverse. President Franklin Roosevelt initiated economic stimulus with the passage of the New Deal relief acts, such as the Agriculture Adjustment Act, the Civilian Conservation Corp, the Public Works Administration, and the Federal Emergency Relief Agency. These were designed to put income and consumption power back in the hands of the people. This pump-priming consumption activity by one group would provide income, and ultimately consumption powers, for additional Americans.

ANALYZING A HISTORICAL EVENT FROM AMERICAN HISTORY USING ECONOMIC PRINCIPLES

Let us now analyze a historical event from American history employing economic principles. Consider the Populist and Silver movements of the late 1800s. Why would farmers and silver producers support one another in a call for a public policy that would thrust inflation upon the land? The answer is buried in the economic principles of people's response to incentives. Individuals and groups act in their own best self-interest.

The State Core Curriculum Standard in United States History reads "Through the study of U.S. history, students will demonstrate why and how ideas, attitudes, events, persons, movements, and documents have influenced human history." An economic analysis of the Populist Movement fits this standard well because it addresses several of the standard's objectives.

Looking back at the Populist era, we see that the increased production of silver by mining interests suppressed the open market price of silver. This price was much lower than the United States government exchange rate, or price, of 16 ounces of silver to 1 ounce of gold, when the nation's currency was based on bi-metalism. Before the mining rush into the West after the Civil War, the price of silver on the world market was higher than that ratio; hence, the government ceased purchasing silver for minting into currency. Global demand for silver made it unavailable for minting at that price. This policy was formalized by Congress, and the federal government officially discontinued the purchase and minting of silver, thus restricting the growth of the money supply.

Farmers, who wanted higher prices for agricultural products, and silver producers, who wanted higher silver prices, called for action. Congress reacted with the passage of the Sherman Silver Purchase Act in 1893. This legislation called for the purchase of silver at the government ratio of 16 to 1. The act did not help the farmer who wanted inflation, because the act required the purchase but not the minting and circulation of silver.

The act was short-lived because of the financial panic of 1893. President Cleveland believed that the recession stemmed from the government purchase of silver with gold and that the dwindling government gold supply impacted the health of the economy. Under Cleveland's urging, the Sherman Silver Purchase Act was repealed, splitting the Democratic party. This set the stage for the famous election of 1896—the battle between William Jennings Bryan and William McKinley—and the famous Cross of Gold speech.

Farmers wanted inflation brought about by increasing the amount of money in circulation. This inflation can be shown by the following analysis:

Assume that one square represents the GDP, or goods produced by an economy in a given year. Assume that the second square represents the volume of money that can purchase those goods.

GDP Quantity of Goods and Services vs. Quantity of Money in Circulation

If we allow the volume or quantity of money in circulation to increase faster than the quantity of the GDP, prices will rise. It will require more money to purchase or claim the same quantity of goods. Increasing the money supply faster than the production of goods will result in demand-pull inflation, which the Populists wanted.

We could also look at a simple aggregate (total) demand and aggregate supply model and assume that the classical long-run aggregate supply curve is vertical. Increasing the money supply with the purchase of silver would bring about the desired inflation. An increase in government spending with the purchase of silver for minting would move the aggregate demand curve to the right. Keep in mind the following AmosWEB definitions:

"Aggregate Supply: The total (or aggregate) real production of final goods and services available in the domestic economy at a range of price levels, during a given time period. Aggregate supply (AS) is one half of the aggregate market analysis; the other half is aggregate demand.

Aggregate Demand: The total (or aggregate) real expenditures on final goods and services produced in the domestic economy that buyers would be willing and able to make at different price levels, during a given time period. Aggregate demand (AD) is one half of the aggregate market analysis; the other half is aggregate supply."

Economic Output GDP

As demonstrated, increasing the total spending by increasing the money supply without increasing the total supply of goods and services leads to inflation. This action would have the same impact on price levels as in post-World War I Germany, when Germany monetized their debts by increasing the money supply and causing rampant inflation.

An investigation into which groups are helped or hurt by inflation will give students additional insights into how public policy decisions impact various socioeconomic groups. Generally speaking, inflation hurts lenders. However, debtors and property owners benefit. The government gains because of its large debt.

LESSON PLANS AND WEB SITES

The National Council on Economic Education has a Web site called EconEdLink with lesson plans and activities to help teachers add economic content to their lessons. It is user-friendly and provides a comprehensive list of lessons, links, and resources. Simply go to the site and click on the Find A Lesson menu option. A great online lesson related to the Populist/Inflation theme discussed earlier, "The Road to Emerald City is Paved with Good Intentions", can also be easily accessed.

To improve your knowledge and understanding of economics, and to pursue your own professional development, I would encourage all social studies teachers to contact the National Council on Economic Education and the Foundation for Teaching Economics, as mentioned previously in this article. The Council for Economic Education identifies the economic concepts and economic measurement tools to be mastered. The Council is a pyramid organization linked to state councils and more than 100 economic education centers at universities throughout the nation. Check your local phone directory or the organization's Web site for the nearest center. And again, The Foundation for Teaching Economics has a Web site packed with information regarding teacher programs and resources.

CONCLUSION

I realize that our state curricula force teachers to make choices concerning instructional content. I believe that these choices are often driven by two factors: First, teachers will offer instruction in areas they feel confident and competent teaching. Second, teachers teach to those concepts for which they have quality tools and resources. It is my hope that you are now inclined to include economic concepts in your social studies instruction.