Financial Literacy, Human Capital, and Liberal Education
When I taught at Rhodes College, I had a serious conversation with a colleague about whether accounting should be considered part of the core of a solid liberal education. We agreed that it should: beyond the fact that imparts vocational skill, accounting helps us understand the methods by which we make sense of a lot of human action.
I’m reading Peter Temin and Hans-Joachim Voth’s Prometheus Shackled: Goldsmith Banks and England’s Financial Revolution after 1700. A few chapters in, I’m really impressed by their history of this segment of the bourgeoisie and their discussion of the relationships between the bankers and their customers, some of noble birth and some of meaner origins.
A few days ago, I asked whether financial literacy should be part of the core of K-12 education if we’re really serious about human capital. Beyond simply “here’s how to read a balance sheet” and “here’s how to discount some cash flows,” I think students would be well-served by understanding where these concepts come from, how they are useful, and how they have influenced the course of history. I remember James Otteson saying once that many of his students subscribe to what he calls the “milk comes from the grocery store” theory of economics in which goods and services appear or disappear according to suppliers’ varying degrees of benevolence and capriciousness. My impression is that they also subscribe to the “banks pay interest because they’re kind and charge interest because they’re mean” theory of money and banking. One history textbook’s mangling of the ideas of supply and demand raises my confidence in this impression.
Even if we take the naive view that history is a story of Great Men Who Fought Great Wars, our undertanding would be enriched if more people understood how these Great Men got the Great Big Piles of Resources necessary to fight their Great Wars. As Temin and Voth show, they did this by muscling their way into a still-young and still-evolving financial system.
I will have more to say about Temin and Voth’s book as I finish it, but here is Richard Grossman’s review at EH.Net.