The invisible hand conceived by Adam Smith is the most significant argument against socialism, Kings, Queens, technocrats, bureaucrats, and social engineers. The theory was expressed in the An Inquiry into the Nature and Causes of the Wealth of Nations in 1776 and elements of his philosophy in The Theory of Moral Sentiments in 1759.
The invisible hand is real and works. The opponents of Adam Smith’s economics idea of the free market do not understand economics. Anyone who proposes an alternative system offers an economical system that will leave people at a lower level of happiness.
Smith developed David Hume’s A Treatise on Human Nature that asserted that humans motivated by accumulating ‘utility.’ Smith expressed this in economic incentives and developed. Mandeville’s idea that ‘Private Vices … may be turned into public benefits’.
The people at the market serving you are driven by enlightened self-interest, and society is brought to equilibrium.
The central thesis of the invisible hand metaphor
The core meaning of Adam Smith’s Invisible hand is: there are unintended consequences of individual action. What this means is, when we are all acting on our enlightened self-interest, society as a whole benefit, in ways no one could ever imagine. It is like magic, your enlighten greed, improves society develops in a positive way. In other words, The self-interest of the individual unwittingly serves society’s self-interest by satiating a demand.
The Enlightenment philosophers believed people are innately good, and with education or training, we will seek out activities that we enjoy the most, which also happen to help others. Think about it: what do you do for work? Chances are it in some way helps someone else. There is no way your job you go to every day does not help others.
It is a combination of creative thinking and enlightens greed. It means, you, yes, you have a gift to satisfy the needs of society in ways no supercomputer or world leader could ever envision.
Human interaction and incentives cannot be engineered by the government, or the shelves would be empty.
What is the force behind the invisible hand?
It is people respond to economic incentives. I can not explain it in any other way. The supernatural force behind the invisible hand is simple. People are rational and are motivated by economic incentives. Therefore, they seek out ways to get paid the most for their time because they want to satisfy their needs and chip away at the fundamental problem of economic scarcity. The way you get paid the most is to figure out what people demand. This is a lesson in philosophy as much as a lesson for entrepreneurs.
What should the government do?
Not an economics Professor, nor even a President who went to an Ivy league school could ever have a greater knowledge of economics than you. You personally are that economic agent who thinks of ways to earn money which translates into satisfying some demand. When a new demand arises the market will satisfy it, if money is involved, trust me, people will jump through hoops to get the job done, no matter what it is. How would you explain so many plumbers (I would be a plumber)?
An efficient market arises superior to anything a government could produce. Micromanaging the economy creates distortions and unhappiness. Therefore the government should be handed off.
The hand is a perfect metaphor because it is what we use to be creative and productive, the instrument in which ideas are brought to reality.
Metaphorically you are a finger in that invisible hand that is creating something great. Let’s say you are a painter; the government would be a third person trying to move your figures.
Metaphorically, imagine a hand that plays the violin, yet another person controls each finger. This is what it would be like if the government tries to direct the market. Better is the free market, capitalism, to have a hand playing the violin on its own accord orchestrated by a consciousness. In terms of economics, it is the collective unconsciousness or the aggregate.
If governments just left people alone to trade and create markets, people motivated by self-interest would create positive outcomes. Just let individuals make their own economic choices, and the result between people is a mutually beneficial outcome, rather than at the hand of a third party come between two market agents.
In the wonderful world of Adam Smith, people are free to choose from.
The invisible hand in action
For example, if someone charges less than what you sell your goods, people will buy the other persons well. If you charge too little, it is not worth your time, or your net profit marketing will be too low or negative. This is market equilibrium.
Another example, if the world demands a clean source of energy, then an entrepreneur will start to work on bringing solar to the market. He is motivated by profit; however, society’s demand is satiated.
Metaphorically, the complexities of the market and an amazing self-correcting balancing act are best done by the person on who is walking on a tight rope, rather than someone guiding them from the audience. The invisible hand is the cerebellum of the market.
Ayn Rand is different than Adam Smith
Remember, Smith was a moral philosopher; he was not a cold-hearted capitalist as many of these followers are portrayed. He was seeking answers to how society as a whole could reach its optimal level of equilibrium and commenting on how people act in society to maximize their happiness. I would say Adam Smith would not agree with Ayn Rand’s ethical egoism. Ayn Rand’s Objectivism movement did have a laissez-faire message; however, it was counter to the enlightenment ideals of altruism. Ayn Rand was more of a radical force, countering the ideas of her time at an extreme. Adam Smith was not extreme and advocated limited government to uplift and better society and individuals, such as education. Rand’s philosophy almost had a caustic, angry message, and I think it gives capitalism a bad reputation. In contrast, Adam Smith’s message was uplifting.
However, economists like Milton Friedman and Hayek subsequently championed this idea in their libertarian economics schools of thinking in a more positive way. The Austrian school of economics and neoclassical thought are worthy successors to Adam Smith’s theory because they focused on the operation of the market with more academic rigor kept it about economic theory rather than a replacement of religion or a way of life.
Capitalism, motivated by consciousness, is a great thing. Read Conscious Capitalism by John Mackey or books of this sort; people transform the work through economic incentives. You can be counter-culture, alternative, and capitalist.
Adam Smith looked at life from a behavioral science perspective, with a particular focus on altruism and moral behavior. If you want to succeed in life, jettison wrong ideas about capitalism and read Wealth of Nations.
Do blonds motivate you?
Funny way to look at the Philosophy of Adam Smith
Invisible hand academic reference
Although everyone speaks about Adam Smith, few people read him. I love reading Adam Smith as you find something that is not in collective wisdom. Anyway, here is Adam Smith’s invisible hand quote. So many people talk about the invisible hand, but in the Wealth of Nations, it only appears once.
What does Adam Smith’s Invisible hand mean? You need to understand who Adam Smith was; he was a moral philosopher and a religious man. He believed that when people act on their enlightened self-interest, then society as a whole benefits in positive ways in which the individual could not imagine.
This means man is good. People who are against Adam Smith’s invisible hand believe people are bad and need to be engineered by a wiser, more moral government bureaucrat. Anti-Smith thinkers like Karl Marx believe individuals can not be trusted to live their lives, and the government needs to put into place laws that direct social, economic behavior. Alfred Marshall’s criticism of Smith when in the realm of monopoly or oligopoly is not based on quantifiable data.
Smith, as a thinker, was pure genius. How could a government engineer an economy if the most significant benefit comes from unseen consequences of actions? Think about it, please. Adam Smith’s Invisible hand is genius, and minds like this come around only once every few hundred years. I live in Poland and travel to Russian and Ukraine and see the lasting effects of a government engineering an economy.
Adam Smith’s invisible hand was nothing more than Adam Smith believing in the good in people. That you can make free choices about your life and your career and the way you participate in the economy. Is there anything wrong with that?