All About The Invisible Hand

Who do you think should control the economy? Do you think the economy should be left alone, and allowed it to reach a good point on its own? Or, do you think the economy should be influence by the government, though means of intervention?

During the 18th century, Adam Smith, brought about the idea of the 'invisible hand'. This idea was simply, the economy should be left alone and everything will be okay, or guided by the 'invisible hand'.

As humans, we are all guided by our own self-interest. Adam Smith thought that, this self-interest would allow sellers to compete with one and other to obtain more buyers.

​This could lead us to equilibrium by giving buyers competitive options to choose from without the influence of outside forces, other than the 'invisible hand' or our own self-interest.

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In The Wealth of Nations, Smith wrote,

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"But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry . . . As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value . . . He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it . . . by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention . . . By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."

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He also wrote it in his book, The Theory of Moral Sentiments,

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"The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species."

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Essentially, the 'invisible hand' is a market force, in which you can not see, pushes and pulls the demand and supply of commodities in a free market that could help achieve equilibrium.