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Adam smith invisible hand handout11/25/2023 Smith addressed various economic theories and models in the course of his career, but the theory of the invisible hand is his most memorable economic notion.Īlthough the theory of the invisible hand has been the subject of various misinterpretations, Smith wanted to “understand the instincts of human nature that attract, bind, or repulse humans in the society” (Wight 345). Consequently, the invisible elements in Smith’s theory affect various human instincts, including basic passions such as selfishness, social, and unsocial passions. Nevertheless, Smith’s inclination toward the theory of the invisible hand is informed by the fact that there are unseen natural forces that have a direct impact on economics. Another faction disputes the issue of simplicity in reference to Smith’s theory and argues that the underlying notions of the theory of the invisible hand are still applicable to the current economic environment. One school of thought argues that Smith’s theory is too simplistic for it to be applicable to the modern economic environment. Some scholars have sought to examine how the 1776 principle of the invisible hand factors in today’s economic environment. The invisible hand, as described by Adam Smith, ensures that all activities happen dynamically and automatically. On the other hand, individuals can improve their economic and social welfares by engaging in the economic activities of the free market. The other factors that govern this free market will ensure that the society is able to access goods and services at an affordable rate. One noble economist interpreted Smith’s concept of the invisible hand to mean that there can be ‘cooperation without coercion.’ Nevertheless, the overall principle in the theory of the invisible hand is that individuals have the right to purchase and/or produce the products that they want. It is apparent that the concept of Smith’s metaphor of the invisible hand has been stretched past its intended limits through various interpretations. In “The Wealth of Nations,” the metaphor of the invisible hand is used in the context of politics of economy where the authors tried to illustrate that under parallel economic environments, traders and investors will desire to use their resources for home trade as opposed to international investments. Smith uses the metaphor a second time in his 1776 book “The Wealth of Nations,” and this usage is the one that is applied in subsequent economic theories and models. In “The Theory of Moral Sentiments,” Smith talks about ‘the invisible hand’ that prompts a selfish landlord to give out a part of his harvest to his workers. In this first usage of the metaphor, Smith alluded to an income distribution model without reference to market environments. Smith then used the metaphor of ‘the invisible hand’ in his 1759 book “The Theory of Moral Sentiments.” The metaphor was first used in an uneconomical context in Smith’s essay on astronomy, where thunder and lightning were attributed to ‘the invisible hand’ of Jupiter. The phrase itself might have come from Richard Cantillon, another economist who used economic theories and models for application into his entrepreneurship. The Invisible HandĪdam Smith used the metaphor of the invisible hand in three different contexts. The metaphor of the invisible hand has been frequently misunderstood by various entities who have blamed Smith for perpetuating greed and individualism, but the economist meant that “individuals try to maximize their own good, and by doing so through trade and entrepreneurship, society as a whole is better off” (Brewer 521).
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