The Invisible Hand and Salaries in Banking

Home › Education › Unit Plans › Economics through the Long History of America’s First Bank › The Invisible Hand and Salaries in Banking

The Invisible Hand and Salaries in Banking

Recently, comedians Key & Peele made light of a classic problem for economists: How is it that some people, such as professional athletes receive famously large salaries, though perhaps those occupations are not as useful to society as other occupations, such as teachers?  This example, although perhaps a cliché, does represent a real issue: How does a market economy sets wages and salaries.

In the market-based and “mixed” economic system that exists in the United States today, salaries and wages are set the market itself – and, alas, star athletes are compensated more than star teachers due to the market’s size and its ‘invisible hand.’

This lesson plan – derived from a less-historically based activity recently created by the Council of Economic Education – seeks to combine a basic knowledge of the history of banking, primary source analysis, and an understanding of the market’s approach to salaries.

Essential Questions

How has social disagreement and collaboration been beneficial to American society?
How has social disagreement and collaboration been beneficial to Pennsylvania society?
What role do multiple causations play in describing a historic event?
What role does analysis have in historical construction?

Objectives

Objectives

The students will be able to:

  • evaluate wages and salaries by looking at the ways in which the government and the market affect them.

This lesson plan fulfills Economic Standards as well as History ones detailed on the Unit Plan.

Big Ideas

  • Individuals and business entities participate in the economy in an effort to obtain desired goods and services to satisfy their needs and wants and to accumulate wealth.

Concepts

  • Individuals, businesses, and nation-states all seek to accumulate wealth through economic enterprise.
  • Individual wages, business profits, national power are largely determined by the forces of supply and demand, the factors that affect productivity, and government economic policies.

Competencies

  • Assess the basic differences between market and command economies in regard to wages and the accumulation of personal wealth.
  • Analyze a modern mixed economy in regard to government policies on wages and the accumulation of personal wealth and business profits.

Other Materials

Primary Source

From the Bank of North America Collection at the Historical Society of Pennsylvania:

Document written in the 1780's, detailing job descriptions in the Bank of North America.

Instructional Materials

Worksheet for "hiring agent" role.

Identity cards to be distributed to the "job-seekers."

Suggested Instructional Procedures

Part I: Primary Source Reading and Analysis

  1. Teachers should first distribute the primary source from the 1780's, detailing the chief administrative jobs of the “President,” “Cashier,” “Teller,” and “Second Teller” for America’s first bank, the Bank of North America. 
  2. The students should be divided into 4 different groups. 
  3. Each group should summarize what each job would entail, and note what skills would make a person particularly qualified for that specific job.

Part II: Activity - This activity will simulate a job market, with varying numbers of "hiring agents" and "job seekers."

  1. Students will be divided into two different roles “hiring agents” and “job-seekers” [if there is time, the teacher may add an optional third role, “government bureaucrat” but this should be done during a later round of the game].
  2. Most of the class will be “job-seekers” and will be given a card that determines their level of skill in each position, from 1-10.  They will not be aware that each skill point could earn their employer $2.
  3.  A few students will be selected as “hiring agents” for a bank.  They will need to search out the best candidates from the roles of “President,” “Cashier,” “Teller,” and “Second Teller.”  They will need to show the greatest total profit.  This will be calculated by multiplying the “skill level” of each hire by 2, and subtracting the amount of money that they spent on hiring these people.  They should use this worksheet.
  4. The Bank with the greatest profit wins.  This activity can be played over and over in order to demonstrate how competition between entrepreneurs and labor (supply and demand) will lead to different wages.  For example, in a classroom with one “hiring agent” and 16 “job-seekers” will yield lower salaries and lots of unemployment.  In a classroom with 4 “hiring agents” and 16 “job-seekers” there shouldn’t be any unemployment, and salaries should be comparatively higher.
  5. After the game has been played a couple of times to demonstrate the way in which the relationship between supply and demand of labor effects wages, the teacher can set a “price floor” in terms of a minimum wage – perhaps $10 per person.  This will perhaps create unemployment in the classroom, as “hiring agents” might not be able to fill all positions before taking a financial loss on a particular hire.
  6. In a separate example, a third position can be created, that of “government bureaucrat.”  This “government bureaucrat” will have access to all of the “job seeking” identities, as well as to all of the “hiring agent” forms and can offer jobs and set salaries as if he were in control of a “Command Economy” as opposed to a “Market Economy.”

Part III: At the conclusion of this activity, students should be asked to respond to two related Pennsylvania competencies, as well as the outcome of the activity itself:

  1. Assess the basic differences between market and command economies in regard to wages and the accumulation of personal wealth.
    1. How did the number of “hiring agents” and “job seekers” affect wages and profits?
    2. How did the “government bureaucrat” represent a “Command Economy”?
  2. Analyze a modern mixed economy in regard to government policies on wages and the accumulation of personal wealth and business profits.
    1. How did instituting a “minimum wage” influence wages and unemployment?
  3. Odgen Nash quipped that 'Bankers Are Just Like Anybody Else Except Richer'.  What did he mean by that?

Related Resources for Students