“The Invisible Hand”

Thoughts on a Free Market Economy…
“The Invisible Hand”
By Phyllis Hunsinger
December 1, 2019

The “invisible hand” that is the driving force in a market economy is each individual promoting his or her self-interest. Consumers aim to get the greatest satisfaction from their budgets; entrepreneurs try to achieve the highest profits for their firms; workers want the highest possible wages and salaries; and owners of property resources attempt to get the highest possible prices from the rent and sale of their resources.

Another way to envision the invisible hand process is one in which the outcome to be explained is produced in a decentralized way, with no explicit agreements between the acting agents. The second necessary component is that the process is not intentional. Independent actions are not coordinated nor identical with the actual outcome, which is simply a by-product of those actions. This is why the process is called invisible.

Adam Smith who identified and named the concept “the invisible hand” noted that this process is most evident in a free market economy. From his book, “The Wealth of Nations:”
Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. .. . He will be more likely to prevail if he can interest their self-love in his favor. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.
Adam Smith said the concept of the invisible hand worked better in a free market economy because if mistakes or misappropriations were made, they would be on a much smaller scale. Centralized market decisions are more prone to corruption. When he wrote “The Wealth of Nations,” he lived under a monarchy, so he understood the flaws in centralized markets. He said:
It is the highest impertinence and presumption, therefore, in kings and ministers to pretend to watch over the economy of private people, and to restrain their expense…They are themselves always, and without exception, the greatest spendthrifts in the society.

In a centralized society a few individuals make decisions on how to spend everyone’s money and direct everyone’s effort. When individuals make decisions on how to spend their own money, time, and production efforts, the invisible hand of the market is allowed to work.

https://www.free-dom.co.us, Phyllis Hunsinger © 2013 All Rights Reserved

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