A History of Personal Finance and Investing in America’s First Bank

Home › Education › Unit Plans › Economics through the Long History of America’s First Bank › A History of Personal Finance and Investing in America’s First Bank

A History of Personal Finance and Investing in America’s First Bank

The fundamental economic problem of scarcity and the basic principle of opportunity cost were both understood by our nation’s founding generation. 

For example, Benjamin Franklin understood both concepts well when he suggested that “A penny saved is two pence clear” ... which is not the same as his popular misquote: “A penny saved is a penny earned.”  As was cleverly pointed out in Blaine McCormick and Burton Folsom’s opinion article in Forbes, Franklin was not equating saving to earning;  instead his lesson is precisely about “opportunity cost” – the basic idea that every decision comes at the cost of the next best option.  Spending money on a new house, for example, comes at the cost of the next best opportunity, and depending on one’s situation, perhaps one might save or invest that money instead

With the complexities of today’s financial headlines, referencing synthetic credit default swaps and sub-prime mortgages, students need a way to begin to understand these concepts.  With the resources in this lesson, perhaps they can start with primary sources relating to our country’s first bank and the various types of transactions that occurred there, as well as the opportunity-cost based accounting that took place there.

Objectives

Objectives

The students will be able to:

  • relate how "opportunity cost" applies to personal decisions by analyzing the method of Double Entry Bookeeping and various investment opportunities.

This lesson fulfilles Economic Standards.

Concepts

  • Scarcity, a fundamental law of economics, exists when individuals, entities, and nation-states have wants that are greater than the limited supply.
  • Choice or effective decisions are required to benefit individuals and societies as consumers, producers, savers, investors, and citizens.
  • Choice or effective decisions are required to benefit individuals and societies as consumers, producers, savers, investors, and citizens.
  • People, acting individually or collectively, must choose methods for the allocation of resources used to produce goods and services.
  • The opportunity cost of decisions by individuals, businesses, communities, and nations is the most highly valued alternative forfeited when a choice is made.
  • The opportunity cost of decisions by individuals, businesses, communities, and nations is the most highly valued alternative forfeited when a choice is made.

Competencies

  • Ascertain what is gained and what is given up when a choice is made.
  • Reveal the opportunity cost of decisions by an individual and the state.
  • Evaluate different methods of allocating goods and services by comparing the benefits and costs of each method.
  • Reveal the opportunity cost of decisions by an individual and the state.

Other Materials

Primary Sources

All from the Bank of North America collection at the Historical Society of Pennsylvania:

A selection of individual ledgers for eighteenth century American notable businesspeople

A sample nineteenth century stock certificate

Sample 1910's dividend information for the Bank of North America

Suggested Instructional Procedures

Part I

Distribute this primary source, containing information about the accounts of John Nixon (pg. 732); Robert Morris (pg. 692); George Meade (pgs. 625-630); Willing, Morris, Swanick (pg. 1137-1142). Each of these accounts was written in the Bank of North America’s ledger books using “Double Entry Bookkeeping” – a style that is still used by accountants to this day.

Questions to ask students:

  1.  Try to analyze how these records were kept for the bank. 
  2. Compare these accounts to how your bank statements appear. (Students might not have bank accounts, but perhaps they have seen the typical single-entry bookkeeping).
  3. In what ways would these ledgers have been helpful to understand transactions in the 1700s?  How might historians use these books today?
  4. After discussion, introduce the students to this video (or any other explanation of Double Entry Bookkeeping). 
  5. Ask the students to relate Double Entry Bookkeeping to the principle of “Opportunity Cost.”

Part II

Distribute primary sources relating to the stocks and dividends of the Bank of North America.

Questions to ask students:

  1.  What are advantages of owning stock in a bank, versus depositing money in a bank?
  2. What are risks associated with owning stock?
  3. What are dividends?
  4. What do the selected pages on dividends tell us about the owners of the Bank of North America (i.e. students ought to notice the influence of large groups like the Haverford College trustees)?
  5. Explain how any choice to invest comes at an "opportunity cost."  I.e., what is the price of the next best option?  What would not investing money involve, etc.?

Vocabulary

Stock certificate:  A piece of paper issued by a corportation demonstrating ownership in that corporation.

Dividend: Money issued from a corporation to its shareholders.

Double-Entry Bookkeeping: A type of accounting, created by Renaissance Friar Luca Pacioli and still used to this day, which records all transactions in corresponding "debit" and "credit" columns.