Business, Legal & Accounting Glossary
Term used by Adam Smith to describe the natural force that guides free market capitalism through competition for scarce resources. According to Adam Smith, in a free market each participant will try to maximize self-interest, and the interaction of market participants, leading to exchange of goods and services, enables each participant to be better of than when simply producing for himself/herself. He further said that in a free market, no regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services took place, since this “invisible hand” would guide market participants to trade in the most mutually beneficial manner.
Adam Smith coined the phrase invisible hand in his 1776 magnum opus, The Wealth of Nations.
Usually stated more fully as the invisible hand of self-interest, the phrase was a way to describe an important idea. Smith argued that in the capitalist system an invisible hand, self-interest, leads market participants to produce the goods and services that tend to serve the public interest. Smith was very religious and to him the invisible hand mechanism was essentially a metaphor for divine intervention. Today the invisible hand process is regarded as an explanation of the positive outcome of decentralized activity in a free market economy. Since self-interest always exists, the impact of the invisible hand remains a topic of active economic research.
Adam Smith believed that the invisible hand would guide individuals to maximize their own good, through trade and entrepreneurship, thus making society as a whole better off.
You may want to do some research on the invisible hand and see if you can learn anything from this principle.
There was an invisible hand guiding the practice and I knew we would be okay in the long run with our company.
laissez-faire
economics
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This glossary post was last updated: 22nd November, 2021 | 0 Views.