Adam smith invisible hand passage8/28/2023 ![]() Consumers generate demand for goods, and producers respond by developing efficient production and distribution methods to meet the demand at the lowest possible cost prices are regulated by competition, which is in turn created by the consumer demand. In simple terms, if consumers and producers are both free to look out for the own interests, an equilibrium will be created. This “balancing force” is what Adam Smith metaphorically called the “invisible hand”. “Maximizing self-interest” is a typical economic textbook term that is often not clearly explained, probably because it sounds a little more dignified than “seeking to purchase resources at the lowest or most efficient costs, and seeking to sell goods, services, or assets for the highest obtainable profit.” Even though no one is acting for the benefit of anyone else, the self-interests balance each other, creating a mutually beneficial exchange for everyone. In a free, unregulated market, competition for scarce resources encourages market participants to act to maximize their self-interest. The term only appears twice in Smith’s book (he had used it in an earlier work in 1759, The Theory of Moral Sentiments, but in a philosophical rather than economic context), but has grown to be cited, and often misinterpreted, as one of Smith’s most important concepts. ![]() The term developed from Smith’s study of another classical economist, Richard Cantillon, and was used metaphorically by Smith to describe the “natural forces” that drive free markets, a kind of product the human nature of people interacting in the market. The invisible hand is a term attributed to the 18th-century economist Adam Smith and appears in his landmark 1776 book, The Wealth of Nations. ‘Invisible hand’ is the term first introduced by Adam Smith and it refers to the balancing force that creates mutually beneficial exchange for everyone.
0 Comments
Leave a Reply.AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |