OPINION:
You’ve probably heard economists speak of the “invisible hand.” This term comes from economist Adam Smith’s famous work, “The Wealth of Nations,” which is also celebrating its 250th birthday next year, along with our country.
The term describes the seemingly unguided movement of prices and resources within a free economy.
It may seem ephemeral, but the invisible hand is not some impersonal force. It’s made up of people. In order to secure the promises of economic flourishing for the future, we need to understand that behind every price change and every supply shift is a real individual doing real work.
When explaining how goods and services are coordinated in such a complex system as our modern free-market economy, economists will say that prices act as signals and send information to buyers and sellers. My colleague, Dr. Anne Bradley, says, “prices serve to coordinate the behavior of large groups of individuals who don’t have the capacity to know all they need to know to make good decisions about what to produce or what to buy.”
Prices can be understood as signals, but those signals do not exist on their own. They are sent and received by people.
In my introductory marketing classes, we teach the four Ps of marketing: product, place, promotion and price. I usually teach price last because it is the only chapter that requires the students to do math and also because pricing decisions cannot be made in a vacuum. I want my students to understand that behind every price tag is a person making a decision.
Consider a grocery store manager. She notices a certain item is sitting on the shelf longer than it should, or maybe it’s taking up space in the stock room, so she decides to lower the price. Buyers see this item on sale labeled “Manager’s Special!” and buy more of it, clearing out the stock room. The manager is not responding to a data model or a government policy. She is responding to what she sees in her store. She wants to move the product, and she adjusts the price to make that happen. She is trying to serve her customers and steward her inventory.
Or consider a product lead at an e-commerce company who tracks product demand during social media “drops.” When inventory runs low and demand is high, he increases the price slightly. He is trying to manage scarcity and ensure that the customers who want the product the most have a chance at getting it, and aren’t gouged by resellers buying it all for cheap, only to resell for two or three times as much. He is doing his best with limited information to serve customers and run a sustainable business.
You could describe these examples in academic or economic terms. The grocery store had a surplus, so its price was too high. The e-commerce company had a shortage, so their price was too low. You could map this on a supply curve and study it at a think tank. But that analysis leaves out the most important detail: Prices don’t change by magic. They change because someone decides to change them. People are responding to the information in front of them. They are making wise choices in their work.
People in sales and marketing do more than move products and sell services. They serve others by meeting needs, creating value and building trust. Dr. Bradley says, “Prices require that we depend on one another.”
Prices also require that we see each other in the system. We don’t depend on an invisible hand to move goods and supplies to where they need to go we are dependent on our neighbors. The often-thankless work of setting prices is an act of stewardship. At the Institute for Faith, Work & Economics, we talk often about how God uses our work to serve others. He calls us into vocations where we can exercise creativity and stewardship. That includes the grocery store manager and the e-commerce product lead. Each plays a role in the larger economy. Each makes decisions that help others flourish.
The invisible hand is not truly invisible. It is the combined effort of countless hands, many of which are being the hands and feet of God to their neighbors. When we understand this, our view of economics changes. It is no longer a faceless system that can be managed and regulated like a machine. It becomes a human story. A story of people, made in God’s image, whose work comes together to produce human flourishing.
• Jacqueline Isaacs, MBA, serves as the managing editor for the Institute for Faith, Work & Economics. She is also president of Bellwether Communications and an adjunct instructor of business at Cumberland University.
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