The Invisible Hand: an economic phenomenon driven by self- interest that results in unintended beneficial consequences to the economy. It is how unregulated markets naturally find an equilibrium of supply and demand and how business’ competition regulates the free-market. First observed and written by Adam Smith in “An Inquiry into the Nature and Causes of The Wealth of Nations,” this effect became a defining factor for the modern day capitalist economic system. In “The Invisible Heart,” by Russell Roberts, the concept of the Invisible Hand is a recurring and important theme throughout the novel. A romance story of a pro-capitalist man, Sam Gordon, and a conservative woman, Laura Silver, Russell Roberts beautifully explains major economic theories and how they are driven by an Invisible Hand that benefits all in a free-market economy. Sam Gordon is a tall, thin teacher at the Edwards School who teaches the course “The World of Economics.
” He had a master’s degree in economics and has a passion for capitalism and the free-market system. Therefore, when Sam met Laura Silver, a conservative woman that was for strict government regulation, at the metro station, conflict emerged. Laura was also a teacher at the Edwards School and taught an English class there.
Throughout the novel, constant discussion and disagreement between the two characters helped visualize economic issues and connected the two. While Sam and Laura discuss the economy, there is a parallel story about a television show starring Charles Krauss and Erica Baldwin. Charles Krauss was the CEO of HealthNet, a major company, and was accused of being ruthless and exploiting his customers for profit. Erica Baldwin, the director of the Office of Corporate Responsibility, leads a group to destroy Krauss and his alleged “corrupted” business. Through Sam, Laura, and the television show, the goal and meaning of economics are unearthed. The first important economic theory introduced in the novel is the basic idea of scarcity. Sam teaches his class economics, the study of allocating scarce resources, with a unique twist. Sam explains to his class that the world would never run out of oil because as oil gets more scarce, the opportunity cost of producing oil increases.
Thus, before oil reserves run out, companies would find it more profitable to use different energy sources than trying to find more oil reserves. Sam makes an analogy to a room full of pistachios: each time someone eats a pistachio, they have to leave the shell within the borders of the room. In the end, one would find it more effective to buy a bag of pistachios rather than spending hours on it to find a single pistachio. Sam explained that every resource is scarce and that every decision has a cost, which is, in economic terms, the opportunity cost. When Sam Gordon and Laura Silvers, two contradicting characters, met for the first time, a dispute arose quickly. It was over safety laws regarding motorcycle helmets and seatbelts.
As Laura spoke for the safety of civilians, even at a higher cost, Sam thought not. He argued that even though people know that helmets and seatbelts add for safety, they are acting upon self-interest. Sam emphasizes the fact that people’s “values of the costs and benefits are not the same as yours” (Roberts 25). Sam believes that without seatbelts, people would be more His perspective is that while one may pay for the extra safety, another may use the money on college tuition- safety comes with a price. In addition to Sam’s argument, there is an effect called the Peltzman Effect, that theorizes that people are more inclined to drive less safely with seatbelts, and vice versa. All in all, Sam’s perspective is that seatbelts, helmets, and safety laws always comes with a price. As many economists often declare, “There is no such thing as a free lunch.
” In addition, the concepts of supply and demand are discussed when Sam and Laura meet in the teacher’s lounge. Laura explains that she is unsatisfied with her annual salary of $23,000, and doesn’t understand how famous basketball players earn millions of dollars. Sam explains that while teachers educate 150 people a year, a basketball player could entertain millions. Sam indirectly emphasizes the forces of supply and demand, where very low supply leads to higher wages. Sam visualizes the consequences of raising the wages for teachers, which he explains that the demand for teachers will be much greater than the supply: the theory of surplus. The government finds itself not employing many teachers, as the pool of unemployed grows.
This effect is similar to the consequences of minimum-wage laws. With higher wages for workers, firms are discouraged from hiring more workers, and therefore, increasing unemployment. In this case, government regulation is leading to an unintended negative consequence. Similarly, Sam outlines the benefits of business competition when Laura complains about the prices of her dry cleaning service.
Laura believes that the dry cleaner is greedy and wants a regulation that lowers the cost of service. While Laura is disappointed that the dry cleaners are only concerned about profit, Sam believes that consumers should encourage profits for businesses. Sam emphasizes the fact that competition drives businesses to make businesses, which in turn, benefits the consumer. With more competition and potential for profit, businesses compete to attract customers with low profits or higher quality. Unless a good or service would be a monopoly, firms compete to please their customers and gain profit, where market prices are barely over production costs.
However, Laura points out that general prices are increasing even though firms try to lower prices to attract consumers. Sam emphasizes the fact that “the effects are masked by inflation” (Roberts 70). Over periods of time, the general prices of goods rise at the rate of inflation.
In a real sense, adjusted for the effects of inflation, the goods and services may be much cheaper compared to years before. Even then, the real prices of the goods and services are understated. This is due to the fact that the variety of goods produced and the quality of the goods increased over time, as well.
Sam preaches that for businesses, profits are secondary to good products and service. And with the invisible hand, the business’ self-interest for profits leads to better products for the consumers. While Sam continued to present Keynesian economics to Laura, Sam was under investigation by the school board. Senator Hunt was a senator that possessed opposite views of Sam and was a major figure in the government.
It happened to be that his daughter, Amy, was in his class of economics. And when Amy was being taught a liberal form of economics, Senator Hunt, who has large power over the school system, sought to remove Sam from the Edwards School. Alongside the storyline between Sam and Laura at the Edwards School exists a parallel story of a television show starring Charles Krauss and Erica Baldwin. Charles Krauss is believed by many to exploit his customers for his business, HealthNet. Many, such as Erica Baldwin, a director of the Office of Corporate Responsibility, question the medical safety of HealthNet’s products. Erica wants to expose HealthNet and put an end to Krauss and his company once and for all.
While Erica is planning to uncover HealthNet, Krauss decides to close a major factory of HealthNet located in a small town in Ohio, Matalon. The components of the factory were to be sent to Mexico immediately. Because the factory in Matalon was unionized, Charles Krauss emphasizes the fact that the company could add “20 million to the bottom line over the next five years” (Roberts 58). Watching the news coverage of distressed workers in Matalon, Erica Baldwin is more inclined to implement a formal investigation to exploit Healthnet and bring an end to Charles Krauss. Like Erica Baldwin, one was looking at the same news coverage that Baldwin had watched: Heather Hathaway. Hathaway was a HealthNet employee that worked directly in the presence of Charles Krauss. Watching citizens’ concerns about their mortgage from the night before, she is infuriated of her company to close the factory in Ohio.
While Krauss went outside of his office, Hathaway decides to take some confidential papers and send it through a copying machine to gain a copy of her own. Hathaway then dialed the Office of Corporate Responsibility and sent the copies at a perfect timing for Erica Baldwin. The copies were full of rows and columns of numbers. As Erica Baldwin and her investigation team research the series of documents, they realize that the papers were data from mandatory clinical trials for the Food and Drug Administration. The medicine from HealthNet was a drug designed for fighting cancer.
And the results from the papers received have consistently indicated towards tumor growth. To complete her investigation, Baldwin scrambles to track down the anonymous sender of the documents. However, it is already too late.
HealthNet has heard, and Hathaway is dead. Watching the television show with Laura, Sam is agitated that the businesses are portrayed as disastrous and relentless. Laura was from a high class and had a brother that had contradicted many views of Sam’s a few weeks before. Sam was also annoyed with the fact that Laura had favored Erica Baldwin and loved the television show. While it is true that many CEO’s have to close down factories, Sam explains that they have a legitimate reason. Sam points out that competition drives out those companies and leads them to close factories.
Additionally, he explains that Krauss realized he could make more profit with a factory in Mexico while giving workers better wages than they used to have. Krauss’ self-interest for profit leads him to produce what satisfies the customer’s needs and makes better products. And besides, without a self-interest for profit, a business is bound to collapse due to competitors forcing the company out-of-business. In addition, Sam emphasizes the fact that even the people in the company that was destroyed by Charles Krauss may be better off in upcoming generations.
In a small town in Ohio, where HealthNet was the dominant factory, many children were destined to work in the factory. However, with the factory gone, those children would be able to invest in different skillsets. The leaving of Healthnet from Matalon Ohio lead to more jobs and more opportunities for future generations.