The Invisible Hand

Essay by kingtim12314University, Bachelor'sB+, May 2009

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The Invisible hand is a term created by the renowned economist Adam Smith in his popular book The Wealth of Nations. It means that when individual's pursue their own self-interest they are led by an invisible hand that promotes the society's interest more than what they intended. It is an important property of a competitive market economy. This idea was created in 1776, the same year of the American Declaration of Independence. It wasn't random, because at the same time when people were fighting for freedom and independence, Adam Smith was talking about emancipating trade from dictatorship. Adam Smith had conviction that government interference in the market place could be harmful to the society.

One must not come under the illusion that the world is beyond our control. At the end of the day the invisible hand is a product of the mass population and it can be affected according to the different ideologies that govern countries such as capitalism, socialism and communism.

If socialism is implemented then the effect of the invisible hand will visibly wane. Almost three centuries ago the English pamphleteer Mandeville in a didactic poem “The Fable of the Bees” laid down what became, a century later, the principle of capitalism." Private vices make public benefit.” Blind and greedy profit-seeking, Mandeville laid down, advances the public good through the invisible hand. In terms of performance, history has proven Mandeville remarkably right. But morally his principle was never acceptable. And the fact that capitalism has become the less acceptable the more it succeeded—as the great Austro-American economist Joseph Schumpeter pointed out repeatedly—has been the basic weakness of modern society and modern economy. This by the way is why the rhetoric of “profit maximization” and “profit motive” are not only antisocial. They are immoral.

It basically is a...