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East Side Tea Party

Pencils Describe the Difference Between Wealth and Money

Posted on October 31, 2016 by ESTP
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A huge misunderstanding many of my students have is that the government produces wealth. After all, the politicians seem to imply that they can produce jobs, save the economy, and devote more money for grandma’s retirement at the same time. None of these measures produce wealth. It is up to you and I to do that. The confusion lies in the fact that the government does indeed produce money.

“Money is different than wealth,” I say as their faces lose all expression. That is when I break out the pencils. Holding up four brand new pencils I say “Imagine these four pencils represent all of the wealth in the country. I could pass them out to four of you and each would have 25% of all the wealth in the nation.” At this point the students want to be one of the lucky four!

“Wait, there is not enough money to go around, we need more. So what happens if I break all of the pencils in half? How many do I have?” Students can quickly respond “Eight.” What if we broke each one two more times? Doubling 8 is 16 and doubling 16 is 32. Now we have enough to give one to every student in the class. Now everyone has a portion of the national wealth, but stop… think … discuss at your tables… by dividing the wealth have we become more wealthy? Why or why not?” (teacher waits for discussions to take place and then randomly selects students to respond).

“Think about the tiny pencils that this produces. Do they have the same value as the originals? Can you write for the same amount of time as the whole pencils?” I then call on a student that frequently needs to borrow pencils from the jar on my desk, we’ll call him Johnny. “When you reach in to borrow a pencil from me, do you look for the smallest one in the jar?” “No,” says Johnny “I get a big one.” “Why?” I ask. The response varies, but the central theme we settle on is that the bigger ones are better. Returning to the class “Of course they are better, they last longer and you can do more work with them.”

The only thing that make a dollar different than monopoly money is that each dollar represents (or used to represent) physical gold in the US Treasury. Yes, I go into a brief tangent about the loss of the gold standard in our nation, but we need to remain focused. At the end of the day, that dollar still represents a portion of the national wealth.

The wealth of the nation does not improve when we print more money. Unless we are adding gold to the treasury, we only divide the wealth that each dollar represents into smaller pieces. Like the small pencils, each dollar is now less valuable, does not last as long and cannot do the same amount of things as it once did.

I tell students how I used to earn only 3.00 an hour, but a comic book cost was only 50 cents. Now that comic costs over $2.50. “Has the value of the paper changed?” I ask. “No,” answering my own question, “the value of my dollars have changed. Every time our nation prints more currency without taking the same quantity of currency out of circulation, we all become instantly poorer because the dollars in our bank accounts or hiding under our mattresses has become less valuable.”

I am writing this because this lesson has been effective to explain the relationship between money and wealth. I thought it might help other children and adults who find this concept difficult to understand. Bear in mind I do not have the time in my middle school class to discuss inflation, regulations, increased labor costs, increased taxation and other factors that contribute to the increase in the costs of goods and services, but this is a good lesson that causes students to look differently at money. I hope it serves you as well.

Posted in Editorial |
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