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What Is Invisible Hand in A Market?

 


The ‘Invisible hand’ is a metaphor used by Adam Smith, a Scottish economist and philosopher, to describe the unintended social benefits of individual self-interested actions in a free market.  

In simple terms, it suggests that when people act in their own self-interest (e.g., by starting a business to make a profit), they unintentionally contribute to the overall well-being of society (e.g., by creating jobs and providing goods and services).  

Here is a breakdown of the concept of invisible hand:

  • Self-interest: In a free market, individuals are free to pursue their own economic goals. This could mean starting a business, investing in stocks, or simply looking for the best deal when shopping.  
  • Free market: A market where prices are determined by supply and demand, with minimal government intervention.  
  • Unintended social benefits: When individuals act in their own self-interest within a free market, they often create positive outcomes for society as a whole. For example, a baker who wants to make a profit by selling bread must also provide a product that people want and need. In doing so, they contribute to the availability of food in the community and may also create jobs for others.  

Adam Smith argued that this ‘invisible hand’ guides resources to their most efficient use and promotes economic growth.  

It is important to note that the concept of the invisible hand is not without its critics. Some argue that it can lead to income inequality and environmental damage, and that government interventions is sometimes necessary to correct market failures.  

However, the invisible hand remains a central concept in free-market economics and is often used to justify policies that promote competition and limit government intervention in the economy.