Adam Smith Invisible Hand
In economics, the invisible hand of the market is a metaphor conceived by Adam Smith to describe the self-regulating behavior of the marketplace.[1] The exact phrase is used just three times in Smith 's writings, but has come to capture his important claim that individuals ' efforts to maximize their own gains in a free market benefits society, even if the ambitious have no benevolent intentions. Smith came up with the two meanings of the phrase from Richard Cantillon who developed both economic applications in his model of the isolated estate.[2]
He first introduced the concept in The Theory of Moral Sentiments, written in 1759. In this work, however, the idea of the market is not discussed, and the word "capitalism" is never used.[3] By …show more content…
While Smith does not mention these social pressures in the above-cited discussion of the invisible hand, one might infer that the selfish and proud landlord hires servants in order to feel himself respected, and displays his wealth in a fine palace in order to gain the respect of others. In this sense, the invisible hand is in its first stage, a sort of system of social pressure that persuades the wealthy to do, of their own volition, what the society around them requires.
The Wealth of Nations
The part of The Wealth of Nations (1776) which describes what future generations would consider to be Smith 's invisible hand, ironically, does not use the term. The process by which market competition channels individual greed is most clearly described in Book I, Chapter 7.
Adam Smith uses the metaphor in Book IV, chapter II, paragraph IX of The Wealth of Nations. In the often misquoted and poorly understood paragraph quoted below Smith argues that a preference for the use of "domestic" industry over "foreign" industry to gain individual profit constitutes an "invisible" and benevolent hand which promotes the interests of the nation and society at large while at the same time enriching the individual. The individual may have a selfish motive but the use of domestic industry and labor enriches and promotes the interests of society as a
He first introduced the concept in The Theory of Moral Sentiments, written in 1759. In this work, however, the idea of the market is not discussed, and the word "capitalism" is never used.[3] By …show more content…
While Smith does not mention these social pressures in the above-cited discussion of the invisible hand, one might infer that the selfish and proud landlord hires servants in order to feel himself respected, and displays his wealth in a fine palace in order to gain the respect of others. In this sense, the invisible hand is in its first stage, a sort of system of social pressure that persuades the wealthy to do, of their own volition, what the society around them requires.
The Wealth of Nations
The part of The Wealth of Nations (1776) which describes what future generations would consider to be Smith 's invisible hand, ironically, does not use the term. The process by which market competition channels individual greed is most clearly described in Book I, Chapter 7.
Adam Smith uses the metaphor in Book IV, chapter II, paragraph IX of The Wealth of Nations. In the often misquoted and poorly understood paragraph quoted below Smith argues that a preference for the use of "domestic" industry over "foreign" industry to gain individual profit constitutes an "invisible" and benevolent hand which promotes the interests of the nation and society at large while at the same time enriching the individual. The individual may have a selfish motive but the use of domestic industry and labor enriches and promotes the interests of society as a