Wednesday, October 27, 2010

Honors World History II: 27 October 2010

Current Events:

Joe Walsh and Melissa Bean Debate: Illinois 8th Congressional District

There were no cameras allowed unless you had a “press pass”. There were roving camera enforcers that were looking for video cameras and promptly ousting them from the auditorium. The event began without a pledge of allegiance to Old Glory. So the people decided to pledge allegiance anyway.

The moderator stated that the Pledge took too long to recite so the audience was instructed that for the lack of time it would not be said: the Pledge took 12 seconds to recite. The moderator's explanation of her rules took 1:15 seconds.

The video taper was told that his Constitutional right to record the debate in a public forum at taxpayer's expense does not “apply tonight”. He was subsequently removed from the debate and barred from entering again.

Constituents Ask Why the Pledge Was Not Recited on a Taxpayer Funded Event

"Why stand we here idle? What is it that gentlemen wish? What would they have? Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!"
Patrick Henry, March 23, 1775

The Ch. 11 Sec. 1 Quiz Make-Up is today.

Skip #2 on the Quiz; you can just leave it blank.

Make arrangements to take the Chapter 10 Test Make-Up if you have not already done so.


HW is available below (per our usual procedure HW is also posted at the bottom of the daily blog post as well as being posted on GradeConnect):

Chapter 11 Section 2 Radical Revolution and Reaction

During the first years of the revolution, a republic was established, Louis XVI was executed, and thousands of people were killed on suspicion of opposing the revolution. While factions fought over control within France, European states fearing the spread of revolution made plans to invade France. The National Convention responded by forming a Committee of Public Safety. The committee led a 12-month Reign of Terror, executing close to 40,000 suspected enemies and expunging signs of Catholic influence. The committee also raised the largest army in European history and repelled the invading armies. With the crisis past, the National Convention ended the Reign of Terror and executed its zealous leader, Maximilien Robespierre. Power shifted into the hands of more moderate middle-class leaders who produced a constitution in 1795. The constitution called for a two-house legislative body and an executive committee, called the Directory. The Directory faced mounting problems. In 1799 a popular General, Napoleon Bonaparte, seized power in a coup d'état.


Word Cloud for Chapter 11 Section 2 Radical Revolution and Reaction

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Wordle: Word Cloud for Radical French Revolution


Terms, People, and Places

The Move to Radicalism

Radicals Take Control and Execute the King

Backed by Paris crowds, radicals then took control of the Assembly. Radicals called for the election of a new legislative body called the National Convention. Suffrage, the right to vote, was to be extended to all male citizens, not just to property owners.

The Convention that met in September 1792 was a more radical body than earlier assemblies. It voted to abolish the monarchy and establish a republic—the French Republic. Deputies then drew up a new constitution for France. The Jacobins, who controlled the Convention, set out to erase all traces of the old order. They seized lands of nobles and abolished titles of nobility.

This is a file from the Wikimedia Commons. Commons is a freely licensed media file repository. Description: JacobinClubDoor.jpg

The Door of the Jacobin Club in the Saint-Honoré Street, Paris, France.
Date: 19th Century Source: G. Lenotre, Paris révolutionnaire, Paris, Firmin-Didot, 1895. This image is in the public domain.

Vocabulary Builder

radical—(rad ih kul) adj. extreme; departure from the usual or traditional

During the early months of the Republic, the Convention also put Louis XVI on trial as a traitor to France. The king was convicted by a single vote and sentenced to death. On a foggy morning in January 1793, Louis mounted a scaffold in a public square in Paris. He started to speak, “Frenchmen, I die innocent. I pardon the authors of my death. I pray God that the blood about to be spilt will never fall upon the head of France. . . .” Then a roll of drums drowned out his words. Moments later, the king was beheaded. The executioner lifted the king’s head by its hair and held it before the crowd.

In October, Marie Antoinette was also executed. The popular press celebrated her death. The queen, however, showed great dignity as she went to her death.

Comparing Viewpoints

On the Execution of a King

On January 21, 1793, King Louis XVI of France was executed by order of the National Convention. Reaction to this event was both loud and varied throughout Europe. The excerpts below present two different views on this event.

Critical Thinking
Which of the two viewpoints makes a better case for or against the execution of King Louis XVI? Cite examples from both statements to support your argument.

For the Execution

The crimes of Louis XVI are unhappily all too real; they are consistent; they are notorious. Do we even have to ask the question of whether a nation has the right to judge, and execute, its highest ranking public official . . . when, to more securely plot against the nation, he concealed himself behind a mask of hypocrisy? Or when, instead of using the authority confided to him to protect his countrymen, he used it to oppress them? Or when he turned the laws into an instrument of violence to crush the supporters of the Revolution? Or when he robbed the citizens of their gold in order to subsidize their foes, and robbed them of their subsistence in order to feed the barbarian hordes who came to slaughter them? Or when he created monopolies in order to create famine by drying up the sources of abundance so that the people might die in misery and hunger? . . .

—Jean-Paul Marat

Against the Execution

The Republican tyrants of France have now carried their bloody purposes to the uttermost diabolical stretch of savage cruelty. They have murdered their King without even the shadow of justice, and of course they cannot expect friendship nor intercourse with any civilized part of the world. The vengeance of Europe will now rapidly fall on them; and, in process of time, make them the veriest wretches on the face of the earth. The name of Frenchman will be considered as the appellation of savage, and their presence shunned as a poison, deadly destructive to the peace and happiness of Mankind. It appears evident, that the majority of the National Convention, and the Executive Government of that truly despotic country, are comprised of the most execrable villains upon the face of the earth. . . .

—London Times, January 25, 1793

The latter perspective, is one of the most well-known perspectives, and is considered the Burkean reaction based on ideas of the Englishman Edmund Burke.

Bastille Day at Eastern State Penitentiary in Philadelphia, 1:52


What occurred after radicals took control of the Assembly?

Crises and Response

By early 1793, danger threatened France on all sides. The country was at war with much of Europe, including Britain, the Netherlands, Spain, and Prussia. In the Vendée (vahn day) region of France, royalists and priests led peasants in rebellion against the government. In Paris, the sans-culottes demanded relief from food shortages and inflation. The Convention itself was bitterly divided between Jacobins and a rival group, the Girondins.

The Girondins, here identified, now that we have covered the Jacobins, are defined in The Crowd in the French Revolution by George Rude.

Cf. The Vendee: A Sociological Analysis of the Counter-Revolution of 1793
by Charles Tilly.

The Convention Creates a New Committee

This is a file from the Wikimedia Commons. Commons is a freely licensed media file repository. Description: Comite de Salut, 1794 18th century print Licensing:
This is a faithful photographic reproduction of an original two-dimensional work of art. The work of art itself is in the public domain for the following reason:
Public domain This image (or other media file) is in the public domain because its copyright has expired.
To deal with the threats to France, the Convention created the Committee of Public Safety. The 12-member committee had almost absolute power as it battled to save the revolution. The Committee prepared France for all-out war, issuing a levée en masse, or mass levy (tax) that required all citizens to contribute to the war effort. In addition, the 12 members of the Committee were in charge of trials and executions.

Spurred by revolutionary fervor, French recruits marched off to defend the republic. Young officers developed effective new tactics to win battles with masses of ill-trained but patriotic forces. Soon, French armies overran the Netherlands. They later invaded Italy. At home, they crushed peasant revolts. European monarchs shuddered as the revolutionaries carried “freedom fever” into conquered lands.

Robespierre “the Incorruptible”

At home, the government battled counterrevolutionaries under the guiding hand of Maximilien Robespierre (rohbz pyehr). Robespierre, a shrewd lawyer and politician, quickly rose to the leadership of the Committee of Public Safety. Among Jacobins, his selfless dedication to the revolution earned him the nickname “the incorruptible.” The enemies of Robespierre called him a tyrant.

Robespierre had embraced Rousseau’s idea of the general will as the source of all legitimate law. He promoted religious toleration and wanted to abolish slavery. Though cold and humorless, he was popular with the sans-culottes, who hated the old regime as much as he did. He believed that France could achieve a “republic of virtue” only through the use of terror, which he coolly defined as nothing more than “prompt, severe, inflexible justice.” “Liberty cannot be secured,” Robespierre cried, “unless criminals lose their heads.”



Maximilien Robespierre (1758–1794) did not have an easy childhood. His mother died when he was only 6 years old. Two years later, his father abandoned him and his three siblings. The children’s aunts and grandfather then raised them. Because of this, Robespierre assumed responsibilities at an early age. Eventually, he went to study law at the University of Paris. His performance was so noteworthy that he was chosen to deliver a speech to Louis XVI on the occasion of the king’s coronation. But young Robespierre was snubbed. After listening to the address in a pouring rainstorm, the king and queen left without acknowledging Robespierre in any way. Years later, in 1789, Robespierre was elected to the Estates-General, where his career as a revolutionary began. How do you think Robespierre’s early life might have influenced his political ideas?

The Guillotine Defines the Reign of Terror

Robespierre was one of the chief architects of the Reign of Terror, which lasted from September 1793 to July 1794. Revolutionary courts conducted hasty trials. Spectators greeted death sentences with cries of “Hail the Republic!” or “Death to the traitors!”

In a speech given on February 5, 1794, Robespierre explained why the terror was necessary to achieve the goals of the revolution:

Primary Source

“It is necessary to stifle the domestic and foreign enemies of the Republic or perish with them. . . . The first maxim of our politics ought to be to lead the people by means of reason and the enemies of the people by terror. . . . If the basis of popular government in time of peace is virtue, the basis of popular government in time of revolution is both virtue and terror.”

—Maximilien Robespierre, quoted in Pageant of Europe (Stearns)

Suspect were those who resisted the revolution. About 300,000 were arrested during the Reign of Terror. Seventeen thousand were executed. Many were victims of mistaken identity or were falsely accused by their neighbors. Many more were packed into hideous prisons, where deaths from disease were common.

The engine of the Terror was the guillotine (gil uh teen). Its fast-falling blade extinguished life instantly. A member of the legislature, Dr. Joseph Guillotin (gee oh tan), had introduced it as a more humane method of beheading than the uncertain ax. But the guillotine quickly became a symbol of horror.

Within a year, the Terror consumed those who initiated it. Weary of bloodshed and fearing for their own lives, members of the Convention turned on the Committee of Public Safety. On the night of July 27, 1794, Robespierre was arrested. The next day he was executed. After the heads of Robespierre and other radicals fell, executions slowed dramatically.


Why did Robespierre think the Terror was necessary to achieve the goals of the revolution?

Reading Check


What were the differences between the Girondins and the Mountain?

The Reign of Terror


Go Online
For: Interactive French Revolution
Web Code: nap-1821

Thinking Critically

1. Identify Point of View

What were the goals of the Committee of Public Safety?

2. Predict Consequences

How do you think life (it should read "life") in France changed after the Terror came to an end?

Crushing Rebellion

The Republic of Virtue

Reading Check


Whom did the Committee of Public Safety consider to be enemies of the state?

A Nation in Arms

End of the Terror

In reaction to the Terror, the revolution entered a third stage. Moving away from the excesses of the Convention, moderates produced another constitution, the third since 1789. The Constitution of 1795 set up a five-man Directory and a two-house legislature elected by male citizens of property. The middle class and professional people of the bourgeoisie were the dominant force during this stage of the French Revolution. The Directory held power from 1795 to 1799.

Weak but dictatorial, the Directory faced growing discontent. Peace was made with Prussia and Spain, but war with Austria and Great Britain continued. Corrupt leaders lined their own pockets but failed to solve pressing problems. When rising bread prices stirred hungry sans-culottes to riot, the Directory quickly suppressed them. Another threat to the Directory was the revival of royalist feeling. Many émigrés were returning to France, and devout Catholics, who resented measures that had been taken against the Church, were welcoming them. In the election of 1797, supporters of a constitutional monarchy won the majority of seats in the legislature.

As chaos threatened, politicians turned to Napoleon Bonaparte, a popular military hero who had won a series of brilliant victories against the Austrians in Italy. The politicians planned to use him to advance their own goals. To their dismay, however, before long Napoleon would outwit them all to become ruler of France.


What changes occurred after the Reign of Terror came to an end?

By 1799, the 10-year-old French Revolution had dramatically changed France. It had dislodged the old social order, overthrown the monarchy, and brought the Church under state control.

New symbols such as the red “liberty caps” and the tricolor confirmed the liberty and equality of all male citizens. The new title “citizen” applied to people of all social classes. All other titles were eliminated. Before he was executed, Louis XVI was called Citizen Capet, from the name of the dynasty that had ruled France in the Middle Ages. Elaborate fashions and powdered wigs gave way to the practical clothes and simple haircuts of the sans-culottes.

This is a file from the Wikimedia Commons. Commons is a freely licensed media file repository. Description: Louis le dernier

Louis XVI of France wearing a phrygian cap, drinking a toast to the health of the sans-culottes. Etching and mezzotint, with watercolor. Scanned from a photographic slide.

Captions, in English:

"Long live the nation" (from bottle to mouth)


Louis XVI, having put on the Phrygian cap, cried 'long live the nation'. He drank to the health of the sans-culottes and affected a show of great calm. He spoke high-sounding words about how he never feared the law, that he had never feared to be in the midst of the people; finally he pretended to play a personal part in the insurrection of June 20. Well! The same Louis XVI has bravely waited until his fellow citizens return to their hearths to wage a secret war and extract his revenge.

Date: 1792 Source: Library of Congress Author: unknown Permission Public domain: This image (or other media file) is in the public domain because its copyright has expired.

This is a file from the Wikimedia Commons. Commons is a freely licensed media file repository. Summary: Cabinet des médailles de la Bibliothèque nationale de France, Paris, France Description: Attis as a child, wearing the Phrygian cap. Parian marble, 2nd century AD, probably during the reign of Emperor Hadrian.
Nationalism Spreads

Revolution and war gave the French people a strong sense of national identity. In earlier times, people had felt loyalty to local authorities. As monarchs centralized power, loyalty shifted to the king or queen. Now, the government rallied sons and daughters of the revolution to defend the nation itself. Nationalism, a strong feeling of pride in and devotion to one’s country, spread throughout France. The French people attended civic festivals that celebrated the nation and the revolution. A variety of dances and songs on themes of the revolution became immensely popular.

By 1793, France was a nation in arms. From the port city of Marseilles (mahr say), troops marched to a rousing new song. It urged the “children of the fatherland” to march against the “bloody banner of tyranny.” This song, “La Marseillaise” (mahr say ez), would later become the French national anthem.
Revolutionaries Push For Social Reform

Revolutionaries pushed for social reform and religious toleration. They set up state schools to replace religious ones and organized systems to help the poor, old soldiers, and war widows. With a major slave revolt raging in the colony of St. Domingue (Haiti), the government also abolished slavery in France’s Caribbean colonies.

Reading Check


How did the French revolutionary army help to create modern nationalism?

The Directory

Reading Check


Describe the government that replaced the National Convention.


Bibliographic resources for the French Revolution

Previous to or the buildup to the Revolution

Cf. The Coming of the French Revolution (Princeton Classic Editions)
by Georges Lefebvre.

The Fall of the French Monarchy 1787-1792 (The French Revolution) by Michel Vovelle.

Great Fear of 1789
by Georges Lefebvre.

General works on the Revolution

The Crowd in the French Revolution (Galaxy Books) by George Rude.

A Short History of the French Revolution, 1789-1799 by Albert Soboul.

The Abolition Of Feudalism: Peasants, Lords, And Legislators In The French Revolution, by John Markoff.

Interpreting the French Revolution by Francois Furet.

Citizens: A Chronicle of the French Revolution by Simon Schama.

The Radical Revolution

The Sans-Culottes
by Albert Soboul.

The Vendee: A Sociological Analysis of the Counter-Revolution of 1793 by Charles Tilly.

Revolutionary Themes After the Revolution

Reflections on the Revolution in France (Oxford World's Classics) by Edmund Burke.

The Age of Revolution: 1789-1848 by Eric Hobsbawm.

Work and Revolution in France: The Language of Labor from the Old Regime by William H. Sewell Jr.

The Course in German History by A.J.P. Taylor.


Chapter 10 Test Prep page


These questions may be--but there is no guarantee--on the Test. They are here as possible questions on the Test for study purposes.

The Enlightenment and the American Revolution (1700–1800)
Philosophy in the Age of Reason


Enlightenment Ideas Spread Self-Test


Birth of the American Republic Self-Test


Chapter Self-Test


Sec. 1 The French Revolution Begins


On the Eve of Revolution


And, additional questions.


Marie Antoniette downfall and execution, 3:57

Marie Antoniette was finally tried by the Revolutionary Tribunal on 14 October. Unlike the king, who had been given time to prepare a defense, the queen's trial was far more of a sham, considering the time she was given (less than one day) and the Jacobin's misogynistic view of women in general.

She was accused of (most, if not all, of the accusations were untrue and probably libelous accusations, sending millions of livres of treasury money to Austria, plotting to kill the duc d'Orléans, declaring her son to be the new king of France and orchestrating the massacre of the Swiss Guards in 1792. People were impressed with her defense and the women present in the courtroom were the market women who had stormed the palace for her in 1789 began to support her.

The outcome of the trial had already been decided by the Committee of Public Safety and she was declared guilty of treason in the early morning of 16 October, after two days of proceedings. The same day at 12:15 pm, two and a half weeks before her thirty-eighth birthday, wearing a simple white dress, she was executed Place de la Révolution (present-day Place de la Concorde). Her last words were, "Pardon me Sir, I meant not to do it", to Sanson the executioner, whose foot she accidentally stepped on before she was executed by guillotine.

Her body was thrown into an unmarked grave in the former Madeleine cemetery, rue d'Anjou, (which was closed the following year). Both her body and that of Louis XVI were exhumed on 18 January 1815, during the Bourbon Restoration, when the comte de Provence had become King Louis XVIII. Proper Christian burial of the royal remains took place three days later, on 21 January, in the necropolis of French Kings at the Basilica of St Denis.

Allan Sherman - You Went The Wrong Way Old King Louie, 3:33

Chapter: Know It? Show It

Radical Days of the Revolution


HW: email (or hard copy) me at

 Wednesday HW
1. p. 339, Reading Check, Examining, What were the differences between the Girondins and the Mountain?
2. p. 341, Connecting to the Past, #1
3. p. 342, Reading Check, Identifying, Whom did the Committee of Public Safety consider to be enemies of the state?
Thursday HW
1. p. 342, Reading Check, Evaluating, How did the French revolutionary army help to create modern nationalism?
2. p. 343, History Through Art, What factors helped Napoleon overthrow the Directory?
3. p. 343, Reading Check, Describing, Describe the government that replaced the National Convention.

Honors Business Economics Chapter 3, 27 October 2010

Current Events:

If you have not taken the Chapter 1 Test Make-Up you should be sure to take it.


The Ch. 2 Sec. 2 Quiz is on Friday (we do not meet on Thursday):


Want to start a model business? Here is a sample of combining your talent into a business:

22 October 2010: After news of Google tax dodges, Obama raises money with Google execs.

The Global Economy and You, p. 58
Pirating Intellectual Property

Chapter 3

Business Organizations, p. 60

Section 1 Forms of Business Organization, p. 61

Most businesses operate in search of profits. Others are organized and operate like a business, although profits are not their primary concern. There are three main forms of business organization. The first is the sole proprietorship, which is a business owned and operated by one person. The second is the partnership, which is a business jointly owned by two or more persons. The third is the corporation, which is recognized as a separate entity having all the rights of an individual. The proprietorship is the most common and most profitable form of business organization. The corporation is the largest and most visible.

One is a sole proprietorship which one individual, the sole proprietor, exercises complete control over the business. Another is a partnership in which two or more individuals combine their efforts and share the profits of the business. Under both business forms, the business is an asset owned by the owner or owner, it has no existence separate from them, and any financial or legal problems encountered by the business are their responsibility. All of the owners’ assets, even those not involved in the business, are at risk. Liability is unlimited.

Chapter Three Spotlight Video

Content Vocabulary

sole proprietorship


unlimited liability


limited life


A type of business in which two or more individuals combine their efforts and share the profits of the business. The business is an asset owned by the owners, it has no existence separate from the owners, and any financial or legal problems encountered by the business are the legal responsibility of the owners. All of the owners’ assets, even those not involved in the business, are at risk. Liability is unlimited.

general partnership

limited partnership


A corporation is type of business organization in which the business is legally separated from its owners. As distinct legal entities, corporations can buy and sell property, enter into contracts, sue, and be sued just like a person.


A state-issued license for a business to incorporate. Only this charter is what gives the business its status -- and rights and obligations -- as a corporation. Historically, charters were only granted to companies that performed some kind of socially useful purpose (running a ferry across a river crossing, for example). Nowadays, charters are available to any kind of business that wants to pay the fees to incorporate.

Corporations and Stocks Game

If you're like most students, you probably don't think much or at all about the stock market. But maybe you should.

Why does the stock market matter to you? Because the stock market – and the whole broader arena of financial investing, really – will almost certainly shape what kind of life you're going to be able to lead. Where you'll be able to live. What kind of lifestyle you'll be able to afford. When (and even whether) you'll be able to retire someday.

Investing matters because it's how the poor become rich and how the rich become richer; they stop working for their money and allow their savings to do their work for them. Big shifts in the overall American (and world) economy over the past generation or two have made it harder and harder to get ahead just by working hard; nowadays, if you don't make some smart investments, you're going to have an incredibly tough time living the kind of life you want to lead on the basis of your wages or salary alone.

Some people like schlepping bricks their whole life. If that's you, great. If it's not… well, listen up.

What Is "The Stock Market"?

Imagine yourself strolling down the aisles of Safeway, looking for bargains on your groceries. But imagine that the price of a bunch of bananas – and everything else – changes its price every second or less. Also, if you want you can sell back your bananas as well as buying more of them. That's basically how a stock brokerage works: the brokerage is the store and the shoppers trading bananas are the investors who buy and sell stocks. In practice, most of the investors trying to profit in the banana trade won't end up doing any better than the entire market performs… but a lot people like to go shopping anyways. And by the way, if you string together all the grocery stores in the world, they comprise the stock market.

There are several different kinds of financial products you can invest in through your brokerage: stocks, bonds, and mutual funds are probably the most important of these.

Mutual Funds

A mutual fund is just a fancy name for a bunch of stocks, grouped together into one package to make it easier to buy and sell. Imagine that we're still in the produce section; most folks want a balanced diet of investing but need fiber from all kinds of sources. Mutual funds are a way to buy fruit salad (a whole bunch of stocks bundled together) rather than just bananas (i.e., one individual stock).

For rich people, mutual funds are a simple convenience. In one shot, they can "buy exposure" to a wide range of securities. But for the average Joe, mutual funds provide a unique and irreplaceable service. To "buy diversity," most investors would need to purchase 75 to 200 different stocks. If they had to do that on their own, they'd have to buy $50-100,000 worth of securities at one time, or else pay a bunch of extra fees in "odd lot" penalties. (An odd lot is a purchase of securities smaller than some nice round number, usually 100 shares. The commission for a typical trade of 100 shares might be $50; to trade 4 shares also likely costs the same $50. The price per share of the commission on that odd lot trade will thus dwarf any investment gains the stock is likely to achieve over the next year or five.) Needless to say, most people don't have $50-100 grand lying around under the sofa cushions, so most people could never hope to build a diverse investment portfolio if they had to buy each stock one at a time.

Enter mutual funds. These aggregate large pools of investors' dollars to be able to buy a diverse basket of securities at "wholesale" prices. You can invest $1000 in a mutual fund and get the equivalent of fractional shares in hundreds of different stocks, all while paying relatively low fees.

For this reason, mutual funds are immensely popular. Most ordinary folks who invest a bit in the market – maybe in the form of a retirement account or college savings plan – will do so by buying mutual funds. So do your homework and invest wisely.


But maybe you're really into bananas. Fruit salad is great, but everybody is into fruit salad. Your investment in fruit salad will probably make you decent money, but it's not going to turn you into a millionaire by next year. But you just happen to have a hunch that papayas, in particular, are about to become the most profitable fruit in the produce section. So you might decide to buy shares in an individual stock in the papaya industry, hoping to beat the market – that is, to make more, faster, than you could by buying into the fruit salad of a mutual fund.

Now stocks, like the individual foods for sale at the grocery store, are not all created alike. You can eat a pound of watermelon and one thing is likely to happen; you can eat a pound of chocolate and another thing entirely is likely to happen; and you can eat a pound of prunes and a whole lot of something ugly is likely to happen.

So try not to put all your money in prunes.

Which stock is right for you depends on your appetite for risk and reward; the price of any particular stock at any particular time is set by our old friends supply and demand. Stocks which pay high dividends (that is, a promised payout in cash each quarter of the year) are generally considered lower-risk/lower-reward investments. They're thought to be a bit "safer," if probably less likely to explode in value. Meanwhile, stocks which trade at lofty multiples of earnings are regarded as "risky"; their value might continue shooting up, or it could come crashing back down.

So choose your investment in papayas carefully.


In addition to stocks, you can buy bonds. What's the difference?

Basically, a stock is a share of ownership in a company. You buy one share of Google, you just bought one tiny slice of the ownership of Google.

A bond, meanwhile, is basically a loan from you to whomever issued the bond – some private company or government entity, usually. The price of the bond is the amount of the loan you're giving them; they will then promise to pay you back regular interest payments, plus eventually the full value of the loan when the bond reaches "maturity."

That means that bonds, in general, are less risky but also have less upside than stocks. Unless the company (or government) that issued the bond goes bankrupt, of course. Then things start to get risky and you might just lose your shirt.

What Sets the Price of Securities?

What determines how much any stock or bond costs? You surely already know the answer to this, friend; it's the same thing that sets the price for everything: supply and demand.

A whole bunch of investors share your view that papayas are the next big thing and want to get into the same company you do: demand for that stock rises and so does the price.

Some kind of bad news on the papaya front – new scientific research proves that papayas make you fat, oh noes! – causes investors to want to flee that industry: demand for the stock falls and the price starts to plummet.

Same thing for bonds: if investors get scared off by volatility in the stock market and want a safe bet in some highly rated bond, demand will increase and the price will, too. But if investors worry that some bond issuer is about to go bankrupt, making the bonds worthless, demand (and prices) will fall.

Elementary, my dear Watson.

But what factors will influence investors' views on which securities will remain in demand, and which won't? There are a whole bunch of metrics to consider: The company's earnings and profit margins. The price-to-earnings ratio – that is, a comparison of the stock price to the size of the company's business. The size of the stock's dividend, if any. The future growth potential (or the opposite) in whatever industry the stock is in. (Is it a good time to invest in the growth potential of green technology? Maybe. Is it a good time to invest in the growth potential of print newspapers? Probably not.)

Some Real Examples

Let's pick on Google for a minute. Google is the King of Search. It has very high profit margins… and a huge load of cash sitting on its balance sheet. So how do we know what a fair price is to pay for GOOG?

Well, as we said, the market value of a company is… whatever the market forces of supply and demand say it is. GOOG has often traded at around $500 per share. The country has roughly 320 million shares outstanding, so if you do the math (320 million x $500) you see that the market has priced the company's total value at something like $160 billion. Whoa.

But Google has enormous profitability. The company has about $32 billion in cash lying around (as of 2010) and no debt on its balance sheet. And it generates almost a billion dollars a month in cash profits. So if you subtract the $32 billion from the $160 billion, you get an "equity capitalization" of a little under $130 billion. If the company will earn $12 billion in the next year, that means that GOOG is trading at a price-to-earnings ratio of about 11x earnings.

If the company continues to grow at anything like the pace it has grown in the past, that's likely "cheap" – even at $500 a share. But if the company's growth slows down, there's also a long way for that price to fall. So would you say GOOG is worth the risk?

What about the Un-Google? GOOG is a great company in a vibrant industry with great profit margins and "free cash flow dynamics" – that is, the company has relatively low costs in infrastructure or capital expenses. But what about a company facing almost the opposite situation; an easy target is the auto industry.

The industry is "enjoying" little or no growth in the United States. Running huge auto plants is enormously expensive in terms of capital expenditures – keeping all that heavy machinery running isn't cheap. Old union contracts have locked in high labor costs and reduced flexibility in the way management can use its workers. It's not an accident that companies like GM and Chrysler almost went out of business in 2009 and had to be bailed out by the government.

So, do you want to buy stock in GM? It certainly looks like a risky bet… and it is. But – remember the magic of supply and demand here – it's possible that demand for GM stock will fall so low that it might start to look to you like a stock with upside. In 2010, somebody bought Newsweek magazine – a firm in another deeply troubled industry – for one dollar. He'll probably lose a ton more money… but if he can somehow turn things around, his upside is huge. Do you have the taste for risk that would lead you to invest in a dodgy industry like autos or print media? Or would you rather stick to Google?

Finally, what about those super-trendy stocks that explode into popularity and trade at seemingly unbelievable valuations. That is, some given company – let's call it, just for fun – goes public at $30 a share, having earned 70 cents a share the year before and with Wall Street analysts projecting that it will earn a dollar a share in the next year.

By three days after the IPO, though, investors just can't get enough Shmoop; the price of the stock has zoomed to $100 a share and the Wall Street Journal writes, "ZOMG! Shmoop Trades at 100x Earnings."

What's going on here? Why would investors invest at such a high multiple? Nobody in his right mind would pay $100 per share for only $1 in earnings, right? But what's happened here is that the market is pricing in higher expectations of the future. The buying public has fallen so in love with the CEO of Shmoop and with the wily founder's creative vision that they believe the company will, in fact, earn $3 a share next year and $10 a share the year after that. So in the world they imagine, Shmoop will really be trading at 10x earnings rather than 100x, making it a fabulous growth stock. That's their dream, anyway; it will be up to their friends at Shmoop to make it actually happen. If it does, those investors will have made a mint. If it doesn't… oops.

Some Final Basics

If you’re hunting for an investment, remember that not all stock is the same. There are two basic types of stock: common and preferred. Common stock grants not just partial ownership in a corporation, but also voting rights. Each share of common stock carries a vote that its owner may cast in the elections that select the board of directors. A sizable bloc of stock confers significant power in choosing the people who will govern the company. Preferred stock does not confer voting rights, but it does guarantee some sort of dividend. Common stock holders may not receive a dividend if the board of directors decides to re-invest all of the profits. Preferred stock holders are also closer to the front of the line if the corporation goes out of business. If the company goes broke, creditors and bond holders have first claim on the company’s assets; preferred stock holders come next.

Next, investors have to know where to buy the stock that they are looking for. Not all stocks are sold in the same place or in the same way. For starters, you don’t buy stock from the company itself—you buy it from a current owner of the stock—and a stock broker facilitates the exchange. The exchange may take place in a physical stock market—America’s largest and oldest are the New York Stock Exchange and the American Stock Exchange. But the nation’s fastest growing exchange is the National Association of Securities Dealers Automated Quotations or Nasdaq. There are also regionial exchanges in several cities that handle the stock of corporations in their area.

Nowadays, though, as far as you're concerned, it's all about the internet. You don't really care where your stock is listed, and you can almost certainly do all your trading from your laptop while wearing your pajamas. But if you don't want to lose your shirt (like that mixed metaphor there?), you'll probably want to have a strong sense of whether the market as a whole is rising or falling.

A bull market is a market in which prices are rising. In a bear market prices are falling. Generally, investors favor bull markets because they are “long” in a stock—that is, stock investors buy a stock with the expectation that it will rise in value so they can sell it for a profit. But is it also possible to “go short” or “sell short” and make money on a falling stock. (If you have never been able to pick a winner this is the niche you’ve been looking for.) When you sell short you borrow the stock from your broker with the agreement that you will return the same number of shares at a later date. You then sell the stock while its price is relatively high, wait for the price to fall, and then buy the stock and return it to your broker. Your profit lies in the difference between the price you sold the borrowed stock for and the price you pay in buying the stock that you return to your broker. You can make a lot of money that way... or lose it all. Probably not a game to be played by amateurs, to be honest.

Brokers can help you out in other ways as well. When you buy stock on margin, your broker lends you a portion of the purchase price. For example, you may be asked only to pay 10% of the total purchase price. Of course, your broker charges you interest on the money he lends you. And if the stock you buy falls in value, placing the money he lent you at risk, he will issue a margin call demanding that you deposit more money or securities into your margin account to protect him from losses.

You should also understand the various ways that you can hedge your bets or reduce your risks in the market. Options, for example, give you the opportunity to buy or sell a stock at a specified price during a limited period of time. When you buy a put option, you are buying the option of purchasing stock at the strike price during an agreed upon period of time. When you purchase a call option, you are buying the option of selling stock at the strike price during an agreed upon period of time. An option allows you to hedge your bets—lock in a certain price before it changes to your disadvantage. But you pay for this certainty. Your final gain or loss will include the price you pay for the option.

You can also reduce your risk by placing stop orders. These are standing orders with your broker stating that he should buy or sell stocks when they reach a certain price. For example, when you are long in a stock you might place a sell stop order telling your broker to dump the stock if the price falls to a certain point. If you are short in a stock, you would place a buy stop order telling your broker to buy the stock if it climbs to a certain price, so that you can cover your short without losing any more money.

Why It Matters Today

Investor Warren Buffett, the richest person in the world, has been called "The Oracle of Omaha."

A mailman who was putting $1000 each year into savings once asked him how to become a billionaire. "Live to 5000," Buffett said.

That's funny, but it points to a deeper truth. Lottery winners excepted, it takes time to build wealth. Hopefully not 5000 years, but the miracle of compounding interest means that small investments can really add up over a long period of time. (Or "multiply up," really.)

Over the course of the last century, the stock market has grown by an average rate of about 9% per year. Looking forward, a more realistic bet is that the stock market will grow 5% per year. With the reinvestment of compounding interest, that means you'd have been about to double your money about every eight years. At that rate, if you'd invested $1000 back in 1930, your investment would have grown to be worth more than $1 million in 2008.

You’re just about ready to take a dip in the market... but do you know how to read Google Finance? A Schwab account?

Check out the stock data below. This is a snapshot (taken a while ago) of three important publicly-traded companies:

So, what does all of that mean? Here's the breakdown, from left to right:

Ticker Symbol: Think of this as the company's nickname. GOOG = Google. BA = Boeing. GE = General Electric.

* Stock Tip: You can completely mess up if you don't pay attention. If you buy a share of HOG, you are buying a motorcycle company, not a pig.

Price: The last trade made for one share of this company.

* Stock Tip: If you're buying or selling shares, make sure to check whether the price quote you're looking at is real-time or not. Yahoo Finance and Google Finance offer real-time quotes. The price quotes on some websites and most TV stations may be delayed by 20 minutes or more.
* Stock Tip: Don't compare the price of company A and company B. Price = Market Cap / Shares Outstanding. So, if a company does a 2-for-1 split of its stock (doubles the number of Shares Outstanding), the Price would drop by half. The company is still worth the same amount. So, Price is not an indicator of the companies overall value.

Change: The amount the stock price has changed since it last closed (at the end of yesterday).

Percentage Change: Harken back to 4th grade math - this is percentage that the stock has changed since it last closed (at the end of yesterday).

Day Range: The day range shows the highest and lowest price that the stock had for the day. Ideally, buy low, sell high. The best investors (and we mean Warren Buffett) don't worry as much about a stock's daily price as its long-term prospects.

52 Week High and Low: This identifies the highest and the lowest price that this stock has sold for over the past 52 weeks. This information allows you to place its current price within a one-year context.

Market Capitalization: This is a measure of the total value of the company. Market Cap = Total Shares Outstanding x Current Price.

* Stock Tip: Market Cap often underestimates the true value of a company because it doesn't include (a) stock options held by employees and (b) privately-owned shares that are not reported, and (c) a pile of cash that the company has locked up in a vault (yep, most companies do this). On the flip side, the company likely has debt (loans) that would subtract from the overall value of the company. Debt isn't included in Market Cap, either.

Div is short for dividend. A dividend is the amount that the company will pay you (typically once per quarter) for each share of stock that you own. Some companies (like Google, in the above example) don't pay dividends.

Yield = dividend / price. This tells you what portion of the price you paid is "guaranteed" to be paid back to you each quarter. Companies can change their dividend at their own whim, so there really are no guarantees. When taxes on dividends are raised, or during tough times, companies often reduce their dividends.

P/E Ratio: The price-to-earnings ratio tells you "how many dollars today are you willing to pay for a dollar of earnings in the future?" In other words, this tells you how excited investors are about the companies growth prospects.

* Stock Tip: Expectations don't always match reality. Just because a company has a high P/E Ratio doesn't mean it will actually do well in the future. Sometimes, the better bet is a slower-growing company with a great management team who can beat expectations.

Volume: Nope, not the kind that you see in geometry. This simply tells you the number of shares that have traded that day.

Open: Stocks open and close. Open is how they begin the day. Close is how they end. Today's close = tomorrow's open.

Okay, team. If you think you've got it, then hop on over to our Corporations and Stocks game to see how you would have fared in the stock market over the past fifteen years.

Why It Matters Today

Think of the stock market as that moving-floor escalator thing you stand on in airports. As soon as you load a grand onto it, the money starts moving slowly forward, over time, at a clip of about 5% a year. Looking at the chart, you will see huge gyrations. You will likely experience some amazing boom times as well as some excrutiating lows. But unless you are really stupid or really lucky or both – or become a professional money manager – you’ll likely compound your savings at about that 5% clip, give or take (and likely take because most people give over a lot of profits to the tax man or to stock brokers by trying to beat the market via trading stocks they know little about... but that’s a different story).

Corporations and Stocks game




Corporations provide a different sort of benefit for their stockholders. Individuals can become partial owners in an enterprise without knowing a thing about business in general or about the specific service or product produced by the particular company. They become partial owners in a business that is professionally managed. Their personal assets are also shielded from any legal or financial liabilities taken on by the corporation. Like all of the corporation’s owners, they enjoy limited liability—only the money they paid for the stock is at risk. And their ownership is easily transferred. They can simply sell their stock and walk away from the business. They may not get as much as they paid for the stock, but that is all they lose in surrendering ownership.

Of course, there is a price for all of this. Since corporations are legally distinct entities, they must pay taxes like the rest of us. Corporate profits are taxed. And then, when those profits are divided up and paid out to shareholders in the form of dividends, shareholders pay income taxes on these profits once again. Shareholders must also pay taxes on any money they earn from the sale of their stock. If the selling price is greater than the purchase price, shareholders pay a tax on this difference or capital gain. But currently individuals pay a much lower tax on capital gains made on assets held for longer than one year than they do on income, shielding them from some of the pain of paying those taxes.

Why It Matters Today

Over the course of the last several decades, stock ownership has become significantly more widespread. At the time of the great crash of 1929, which began the Great Depression, fewer than 1% of Americans owned any stock at all. Today, more than half of all households are invested in the stock market in some way, most commonly by owning mutual funds and 401(k) retirement plans.

The stock market -- the place where individuals can invest in corporations -- has thus become an important factor in many ordinary Americans' wellbeing.

At the same time, in recent decades returns on stock market investments have far outpaced returns on labor. In other words, it has become increasingly difficult (if not impossible) to earn a comfortable living or (especially) to enjoy a comfortable retirement on work wages or salary alone. If you're not earning investment income, you're going to have a really hard time making it in the 21st century.

So even if you don't own stocks yet, you should start figuring out how you're eventually going to buy into the market.

Quarterly distribution of corporate profits to shareholders. Not all stocks pay out dividends.

common stock

A type of corporate stock that confers voting rights but does not guarantee a dividend. Common stock holders participate in the election of the board of directors. The most common type of stock (hence the name, rimshot).

preferred stock




double taxation

This is a definition of what is commonly labeled “double taxation,” corporate profits are taxed and then, if distributed in the form of dividends, these same profits are taxed again along with the rest of the shareholder’s income.

Academic Vocabulary



Student Web Activity "The Better Business Bureau"


The Better Business Bureau



* Click on "About Us" on your screen.
* Next click on "FAQ" and read through the questions and answers.
* Click back to the BBB homepage and click on "Business" under the "check it out:" tab. Explore the process of locating company reports.

You may need to try major firms and a more general search such as in all of the Commonwealth. Also, restaurants may be interesting for the information that the reports contain.

* Next, click on "File a Complaint" and explore the process of filing a complaint. Be sure to read the information in the "General Complaint" link at the left of your computer screen.

Reading Strategy


Companies in the News

Main types of business, 6:20

Types reviewed and advantages and disadvantages

Corporations are everywhere. You probably deal with thousands of them every day They're such a critical part of the American economy that you probably don't even notice or think about it.

But this wasn't always the case. When the United States was born, corporate charters were rarely granted. The benefits gained through incorporation were considered so great, they were offered only to businesses that served a broad public interest. A ferry company might receive a corporate charter, but an ordinary factory would not. If you proposed to build a canal that would link towns and expand trade, the state might grant you charter. But if you sought to incorporate your flour mill, you would probably be turned away.

Long story short: you could only incorporate if your business was going to do something very special to serve the public interest.

By the middle of the nineteenth century, however, these views had changed. Policymakers came to realize that the corporate form served all Americans by facilitating economic growth. For business owners, the corporation offered a way to increase both their capital and the stability of their businesses. For investors, the corporation offered a relatively risk-free way of taking part in emerging commercial opportunities.

Today, corporations bring in more than 80% of all dollars earned in America. Savvy stock investors participate in a global exchange worth more than $100 trillion. Corporations are here to stay, and they provide many of the best opportunities for individuals to get ahead in the world. Yet many people are left behind simply because they do not understand how to read a financial website. Are you one of them? Read on, and you won't be.

A trip through the local strip mall might suggest that corporations are taking over America—everywhere you look, you'll see Starbucks and Walmarts; the locally owned "mom and pop" business might start to seem like a dinosaur. But, as is often the case, the statistics tell a different story. The number of sole proprietorships and partnerships (based on the number of tax returns filed) increased by more than 53% between 1990 and 2006; the net income earned by this sector of the economy increased by almost 500%. In comparison, the number of corporations increased by 57%; their net income increased by 425%.

But corporate receipts accounted from more than 80% of all dollars earned in 2006.

Does that mean that America’s small business community is growing as fast as its corporate sector? Not exactly. Sole proprietorships, partnerships, and corporations are distinct forms of business organization—and size is not really the defining feature of any of them.

Why It Matters Today

Ever think about starting your old small business? Maybe even something as simple as mowing lawns or babysitting neighborhood kids? If you wanted to set yourself up legit, you'd probably start with a sole proprietorship. It's simple, it's easy, and it's cheap.

Later, if your lawn-mowing or babysitting business really takes off, you may outgrow the basic structure of the sole proprietorship. Once you have employees, or grow large enough to fall under government regulation, or begin to worry about liability issues, it's probably time to incorporate.

Sole Proprietorship, p. 62

Main Idea

Forming a Proprietorship



Reading Check, p. 64


What are the major disadvantages of a sole proprietorship?
The most basic and fundamental type of business organization is the sole proprietorship. Within these types of businesses one individual, the sole proprietor, exercises complete control over the business and is legally and financially responsible for the activities of the business. If a customer trips and breaks a leg, the proprietor is sued; when it’s time to expand, the proprietor must secure the loan under his or her name.

A slightly more complex form of business organization is a partnership. Under this arrangement, two or more individuals combine their efforts and share the profits of the business. They also share all of the risks, as well as the financial and legal responsibilities. The details are generally spelled out in a letter of agreement between the partners.

Within a partnership, one individual is not held entirely responsible for the activities of the business. But for the most part, sole proprietorships and partnerships are very similar. The business is an asset owned by the owner or owners, it has no existence separate from the owners, and any financial or legal problems encountered by the business are the legal responsibility of the owners. All of the owners’ assets, even those not involved in the business, are at risk. Liability is unlimited.

That issue of liability is the single biggest reason why many businesses choose to incorporate; a corporate structure (read on to the next page for more) protects the business owner from individual liability if things go wrong with the business. Sales go in the toilet while costs shoot through the roof? Somebody wipe out on your sidewalk and sue you for millions of dollars worth of "pain and suffering"? If your business is a sole proprietorship or partnership, you might end up losing everything. But if you've incorporated, the business may be toast but you, as an individual, are protected.


Main Idea

Types of Partnerships

Forming a Partnership, p. 65

Introduction to Shark Tank, 3:49


Shark Tank - Season 1 Episode 1 Part 1/5, 9:49


Disadvantages, p. 66

Reading Check


What are the differences between a general partnership and a limited partnership?

Corporations, p. 67

Main Idea

What is a Corporation?, 7:15

Forming a Corporation
A corporation is a very different type of business organization. Most significantly, a corporation is a business entity legally separated from its owners. When business owners decide to incorporate they secure a charter from the state government. This charter is like a birth certificate, establishing the existence of a new and separate legal entity. Once incorporated, the corporation can buy and sell property, enter into contracts, sue, and be sued... just like a living, breathing person.

In fact, that's what a corporation is: a legal "person." (The word "incorporate" shares the same root as "corpse"; it means something like "to give it a body.") The idea is that the corporation is a fictitious person, with many of the same rights under the law as a real person.

For the sole proprietor turned corporation, there are several benefits. Most importantly, his personal assets (home, car, boat, iPod) are no longer at risk should the corporation have problems. If the corporation is sued, only its assets are at risk. If the corporation goes broke, its creditors can only go after the corporation’s assets. As there is a legal barrier separating the corporation and its owners, the owners enjoy limited liability.

There are other benefits as well. To finance expansion, corporations may sell stock. Most corporations, in fact, do not sell stock to the public; all of the stock is privately owned. But if a company decides to expand its capital base by “going public” it issues an initial public offering or IPO. People buying the stock acquire partial ownership in the corporation. And the more shares they buy, the larger percentage of the corporation they own. Of course, this also means that the original owners also have to share profits. These may be distributed to the shareholders quarterly in the form of dividends.

Corporations may also raise money by selling corporate bonds. Like governments, corporations may issue bonds that promise repayment over a specified period at a certain interest rate.

Another benefit of turning a sole proprietorship or partnership into a corporation is that the business becomes more durable—that is, it is no longer so tied to the health of the founder. If the founder dies, the corporation lives on. Similarly, a corporation is less dependent on the talents of its founders. As corporations grow, they are governed by a board of directors elected by the shareholders. This board selects a president or CEO (chief executive officer) to manage the corporation. A sole proprietorship may have a technically brilliant but, from a business point of view, inept founder. He may turn the business over to his even more incompetent children. But the governing structure of corporations allows management to be handed over to professionally trained executives.

Why It Matters Today

Are corporations people?

The common-sense answer is no. A corporation is not, to state the obvious, actually a living human being.

But in the eye of the law, the answer is essentially yes. A series of Supreme Court decisions in the 1800s expanded the rights of corporations, eventually extending to them the crucial rights to substantive due process included in the 14th Amendment. As recently as January 2010, the Court reaffirmed that corporations have most of the rights of real people, overturning a campaign finance law on the grounds that it violated corporations' (and unions') right to free speech.

Corporate Structure

In Motion Corporate Structure


Advantages, p. 68
Financially, corporations benefits from being allowed to raise capital by selling stock. In purchasing stock, stockholders become partial owners of the corporation and are entitled to a share of the profits. Corporations can also raise money by selling bonds like a government. Legally, corporations benefit from limited liability. Since the corporation is a legal entity separate from its owners, the owners’ personal assets are not placed at risk by any action taken by the corporation. Should the corporation be sued or have financial problems, only corporate assets can be seized.

Disadvantages, p. 69

Through what is commonly labeled “double taxation,” corporate profits are taxed and then, if distributed in the form of dividends, these same profits are taxed again along with the rest of the shareholder’s income.

Reading Check, p. 70


Why do many business owners prefer corporations over other forms of business organizations?

Entrepreneur, p. 71

Profiles in Economics

Andrea Jung

On Charlie Rose - Andrea Jung, 2:20

Proprietorship - owned and run by a single person.

Partnership - jointly owned by two or more persons.

Corporation - business organization recognized by law as a separate legal entity with all the rights of an individual.


Forms of Business Organizations, Tax and Insurance Issues for Small Business, 9:56

Learn: * How to Choose a Form of Business * How it can maximize your protections and future growth potential * Characteristics of a sole proprietorship, general partnership, corporation, limited liability companies and limited liability partnerships * Whether S Corporation Tax election is right for you * What tax issues are important for small business and why * What insurance coverage every small business owner should consider

Larissa Buerano, Agent, State Farm Insurance

Rajeev Kaul, CPA, PC.

Joyce Moy, Executive Director, Asian American / Asian Research Institute - CUNY

My Own Business: A course on how to start a business

Chapter 3: Business Organizations
Self-Check Quizzes

Crossword Puzzle

Vocabulary eFlashcards
Show Business is the Federal Reserve Bank of Boston's learning activity on economics and the entertainment industry. The goal is to provide an additional tool for teaching and learning about basic economic concepts, with some economic history snuck in.
JA Titan
Test your skills running a business in this ultimate business simulation! As CEO, you will match wits in the competitive, technologically advanced industry of the Holo-Generator™.Cf.
Corporations and Stocks game


A music video from School House Rock on investing and Wall Street.



Ch. 3 Sec. 2 Business Growth and Expansion

Figure 3.4 Growth Through Reinvestment, p. 73



HW email to or hand in hard copy.

1. What are some personal qualities that a sole proprietor might need to form a successful proprietorship?


Friday: Ch. 2 Sec. 2 Quiz (Study page posted)