I’m willing to bet that the great economists of history—Adam Smith, David Ricardo, John Meynard Keynes, John Kenneth Galbraith, Milton Friedman, John Forbes Nash—never had to deal with children.
Economics is a subject that only recently has received notice in the classroom as a stand-alone theme. In most classrooms, the theory of supply and demand only went as far as the infuriating scarcity of pencils: “You brats demand all you want, because I’m supplying squat!” Occasionally, in the math lesson on money or calculating interest, the subject of prices would surface now and again, with the foul-mouthed child blurting out “I can’t get shit for a dollar!”
That rude little bastard just learned about inflation. He’s absolutely right, literally—most manure for fertilizer costs about $3.00 a pound.
It’s not that kids don’t learn about economics; they certainly begin to value scarcity when they beat up the kid with the most money to buy candy. Now they have to create demand charts to show if beating up the rich kid moves the demand curve. How would Keynesian economic theory of employment handle the need for new gym equipment? Can the Nash Equilibrium get us the money for that field trip to Washington, DC? Is the drug deal down the street conducted according to the Ricardian model of comparative advantage?
I never learned about classical economics—the charts, the theories, the “if X happens, the Y curve moves this way” junk—until the end of high school, as an elective course. I thought it was easy, until I got to college. After a textbook full of graphs, droning lectures and inane problem sets, the graphs that moved in a slow waltz started bouncing all around to a slamming techno beat. I think price elasticity was on Ecstasy. I had to figure out why, or I’d flunk the course. I try to figure out why, and I get a C in the class. I shut up and memorize the graph movements like an Arthur Murray cha-cha, and I get a B or an A. This is why I can’t understand economics.
As a matter of fact, neither can New York State. According to the state standards for social studies, Standard # 4, Economics states that:
“Students will use a variety of intellectual skills to demonstrate their understanding of how the United States and other societies develop economic systems and associated institutions to allocate scarce resources, how major decision-making units function in the U.S. and other national economies, and how an economy solves the scarcity problem through market and non-market mechanisms.”
This is as clear as my freshman microeconomics textbook which, funny enough was written by a Marxist. Most economists tend to be left-leaning, by the way, which makes sense considering the amount of clear, well-thought ideas that come out of an economics class.
Imagine a fourth or fifth grade kid looking at this. Once he wakes up after fainting to the floor, this kid will learn he’ll be tested on that stuff. New York tests children on their knowledge of basic economic theory on their social studies tests in fifth and eighth grade. Sure, he won’t be solving game theory or tackling Keynes’ “sticky wages” problem, but he will need some basic ideas about supply and demand, prices, production chains, wages, taxes, budgeting, and allocation of resources.
It’s a tall order, to be sure, so here’s a way to whittle this down to an elementary school level:
Point # 1 – Nothing is for free
Everything we use in our lives, from trees and air to automobiles and computers, costs something to someone. You may think it’s free, but having something means someone else does not have it. The more people we have, the more air and resources we use, which does not necessarily replace itself.
This is especially true with the stuff students have and use: it costs money and materials to make things. Also, people who work for a living need to be paid, otherwise there’s no point to getting up in the morning. If your kids still don’t buy into this concept, have them show you the tree that grows money.
Point # 2 – People want what they can’t have
This is the fundamental concept behind prices—supply and demand. If everyone can have something, then it probably isn’t worth very much. A pencil is a few cents; any bozo can buy one from the corner store. A BMW convertible, on the other hand, will cost you a lot of pencils. Since cars cost a lot to make and develop, car companies don’t produce as much as pencils on a per unit basis; hence the exorbitant sticker price.
The best example of supply/demand dynamics is that celebration of gluttony MTV Cribs. Ask your students if people would watch MTV film a half-hour video tour of your apartment. The Scarface poster alone would cover a single wall. The only Bentley in that place would be the annoying English guy on The Jeffersons.
Point # 3 – Nothing lasts forever
As times change, tastes change, therefore prices change. My students were stunned when I told them that decades ago, a four-function calculator—the same one they get for free—cost hundreds of dollars. A Panasonic pop-up VCR cost around $800 in the early 1980s. The CD player may be marching toward a similar fate.
Prices change when people don’t want something anymore. The Xbox 360 is a perfect example. When it was released, the Xbox 360 cost approximately $300.00. As long as people wanted this thing, stores would keep the price high. Yet at some point, everyone who wanted one of these white glowing boxes had one in their house. You don’t need two of these things. So people don’t buy them anymore, the stockpiles climb, and stores have to lower prices to get rid of what was once the must-have item.
Point # 4 – You can’t do it alone
Santa’s elves don’t make toys. They probably outsource them to China, using packaging designed in Japan, marketing and advertising developed in the United States, shipped to the North Pole on tanker ships registered in Norway, laid on those Ice Road Truckers trucks to make the trip north. Meanwhile elves merely supervise helpdesks in Hyderabad and Bangalore manned by Indian college grads in order to expedite shipments on Christmas Eve using multiple sleighs and routes mapped out on Google Earth and re-located on Garmin GPS devices. Santa, by the way, is at his private island in the Bahamas.
The production, marketing, and distribution of products is a long, complicated process featuring multiple people in differing roles. Students need to understand how factories, transportation, and communication work together to get things in stores. No elf in the North Pole can make an IPhone by himself using a hammer and a piece of wood. Steve Jobs tried, and the results just didn’t test well.
Point # 5 – Give the man his due
Along with the buying, selling and making of things, a group of people also need, want…even crave money to do things. That group is our government, in all its levels. Eventually, the subject of taxes will come up, especially in public schools that operate on taxpayer dollars (even some private schools, as well, thank you NCLB). Taxes are never pleasant; throw money into a flushing toilet and you’ll get the gist of it. Yet for all their unpleasantness, taxes are needed for government to function.
Transportation, hospitals, schools, highways, police, firefighters, prisons—you can spend a whole day making a list of the different places in the community that require taxpayer dollars. Inevitably, this will lead to the discussion of teacher and administrator salaries. Of course, you should never reveal your salary to your students. More importantly, if a student asks if the principal is paid too much, smile and lie.
Now, this is basically the extent of detail you will need for the fifth grade. Eighth grade may actually require the graphs. Do your kids a favor and don’t show them your notes from Econ 101–especially the pot leaf you drew so painstakingly next to that production possibilites frontier graph.
To my surprise, there are a number of websites that relate to economics for young people. Enjoy exploring them while you come up with an impossibly difficult interest rate problem that will leave your kids butting heads like bighorn sheep.
Social Studies for Kids – Economics – Good overall coverage of the basic points.
US Treasury for Kids – actually a portal to other kids sites in the federal government. The US Mint for Kids is pretty neat.
Money Instructor – loads of lessons on basic econ for the kids to use.
Brain Pop – Economics – always good for fun and for learning.
Fedville – apparently the Federal Reserve Bank of San Francisco created a site to teach kids about finance in a fun way. As if the Fed can teach anyone about fiscal responsibility nowadays.
Mr. D's Neighborhood 
Couple points and maybe a suggestion.
1) Manure might be $3 a pound but the kid prob. doesn’t need a full pound. Have you ever tried to eat the stuff? A little goes a long way.
2) Answers to your questions:
– How would Keynesian economic theory of employment handle the need for new gym equipment? It wouldn’t.
– Can the Nash Equilibrium get us the money for that field trip to Washington, DC? It can’t.
– Is the drug deal down the street conducted according to the Ricardian model of comparative advantage? Almost certainly.
3) The suggestion. I don’t know if you could make it work (I don’t work with children and there’s a reason for that…), but using the short piece “I, Pencil” might a be a good way of getting across the magic of free enterprise and the way it allows many people around the world to combine their efforts to provide the daily needs of the world without anyone being “in control” of the process or any of the participants even being aware of the whole.
It’s the ‘genealogy’ of a pencil and explains how no single person on Earth can make a pencil. Though it seems the most basic thing in the world the technologies required for its creation are far too complex to be understood — let along mastered to the extent required for actual production — by any one person. So it would seem that creating even a single pencil, let alone many pencils and getting them to places where they are needed would be an organizational challenge well-nigh unsolveable.
Yet the coordination between all the many, many groups necessary for the creation of the pencil arises almost as if by magic.
At any rate, you can find it here: http://www.econlib.org/library/Essays/rdPncl1.html
It was orginally published in 1958, so it reads a bit dated now-a-days (“my graphite comes from Ceylon…”) but the principals it illustrates are timeless.
The final paragraphs head into something of a libertarian polemic but I think it’s probably still useful as source material for explaining to youngsters how complex even the simplest things are and giving them a bit of a feeling for how the free choices of many people, each of whom may not even want a pencil, combine through trade of their special knowledge with each other in such a way that pencils are not only created, but for practically nothing to the end user.