The Invisible Hand
The invisible hand describes the unintended social benefits of an individual's self-interested actions, a concept first introduced by Adam Smith in The Theory of Moral Sentiments, written in 1759, invoking it in reference to income distribution.
By the time he wrote The Wealth of Nations in 1776, Smith had studied the economic models of French physiocrats for many years, and in this work the invisible hand is more directly linked to production, to the employment of capital in support of domestic industry. The only use of "invisible hand" found in The Wealth of Nations is in Book IV, Chapter II, "Of Restraints upon the Importation from foreign Countries of such Goods as can be produced at Home." The exact phrase is used just three times in Smith's writings.
Smith may have come up with the two meanings of the phrase from Richard Cantillon who developed both economic applications in his model of the isolated estate.
The idea of trade and market exchange automatically channeling self-interest towards socially desirable ends is a central justification for the laissez-faire economic philosophy, which lies behind the neoclassical economics.
In this sense, the central disagreement between economic ideologies can be viewed as a disagreement about how powerful the invisible hand is. On alternative models, forces which were nascent during Smith's lifetime, such as large-scale industry, finance, and advertising, reduce its effectiveness.
Interpretations of the term have been generalized beyond the usage of Smith.
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By the time he wrote The Wealth of Nations in 1776, Smith had studied the economic models of French physiocrats for many years, and in this work the invisible hand is more directly linked to production, to the employment of capital in support of domestic industry. The only use of "invisible hand" found in The Wealth of Nations is in Book IV, Chapter II, "Of Restraints upon the Importation from foreign Countries of such Goods as can be produced at Home." The exact phrase is used just three times in Smith's writings.
Smith may have come up with the two meanings of the phrase from Richard Cantillon who developed both economic applications in his model of the isolated estate.
The idea of trade and market exchange automatically channeling self-interest towards socially desirable ends is a central justification for the laissez-faire economic philosophy, which lies behind the neoclassical economics.
In this sense, the central disagreement between economic ideologies can be viewed as a disagreement about how powerful the invisible hand is. On alternative models, forces which were nascent during Smith's lifetime, such as large-scale industry, finance, and advertising, reduce its effectiveness.
Interpretations of the term have been generalized beyond the usage of Smith.
x----x
This entry is brought to you by Coffee Bean and Tea Leaf.
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