Invisible Hand
Candlefocus EditorThe idea of the invisible hand is predicated on the notion that entrepreneurs act independently and on their own behalf, but make decisions which have an impact on the whole of society. Though the true purpose of an individual or entrepreneur in the market is driven by their own self-interest and acquirement of wealth, their actions inadvertently benefit the larger economy. It is this concept of unintended consequences that the invisible hand symbolizes.
Proponents of free market systems, such as laissez-faire capitalism, argue that the invisible hand efficiently allocates resources and rewards those who produce goods and services that are socially desired. This occurs as each exchange between individuals produces signals as to what goods and services are valuable, and how difficult they are to bring to market. As the market adjusts to these signals, the law of supply and demand helps to guarantee that the value of goods and services converges toward their true, economic value.
Critical economists often argue that even if the invisible hand does lead to increased economic efficiency, it does not always create socially desirable outcomes. As individuals pursue their own interests and profit, the pursuit of money can lead to more problems such as greed, inequitable distributions of wealth and resources, and the externalization of costs onto other actors in the economy. Furthermore, the social costs of certain goods, such as environmental destruction, may not be reflected in their prices due to unaccounted negative externalities. Because of these unintended consequences of the invisible hand, Adam Smith himself advised governments to intervene in the free market to ensure the well-being of the public.
In conclusion, the concept of the invisible hand has been a cornerstone in economic theories associated with liberalism for centuries. While it serves as a useful metaphor for how market forces allocate resources more efficiently, the invisible hand does not always lead to socially equitable outcomes. Ultimately, it is up to governments and citizens to intervene in the market to ensure that the public interest is taken into account.