In RAGMAG, Issue 21, February 2012
Have you heard of the invisible hand? No! Think again! The invisible hand is part of Adam Smith’s body of work- he’s also the father of capitalism and the author of the “Wealth of the Nations”. Smith, an advocate of free markets, as opposed to protectionism and government regulated markets, used the term as a metaphor. The term refers to the self-regulating nature of the marketplace. Basically, it’s the natural force that guides free market capitalism through competition for scarce resources. Smith posited that individuals when pursuing their own goals will be promoting the goals of the entire society. Smith has illustrated how he believes the economic society operates: Each individual in the society will be pursuing his/her own goal of increasing his/her wealth. In order to do so, the individual must engage in an exchange of goods and services with someone else in the society who will value what is offered. In a free market and due to the division of labor the society’s interest will be improved. Therefore, there will be no need for any regulations in the market since the “invisible hand” will guide the market to equilibrium.
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