Adam Smith: The Invisible Hand

Adam Smith is an 18th century economist known for his book The Wealth of Nations. He forms a theory “invisible hand”, defined as the indistinguishable market force that helps the supply and demand of goods in a free market reach equality.

Effect

Smith’s ideas influenced the free-market, capitalistic society of today; private money making is of chief importance for capitalism to succeed. Adam Smith points out that the economy will thrive under a free market working towards individual interests, rather than a government restricted and/or limited market where the government has some dictation over the economy.

Benefits

The invisible hand theory benefits the economy significantly by encouraging competition. The seller with the lowest price forces their competitors to lower their prices to compete and to maintain business. Driving down prices benefit consumers as well as lowering the cost of living, therefore decreasing poverty rates.

Free-Market Economy

• One member of society buying a product helps pay the salary of a worker, and creating a trend that benefits the economy
• Trickle-Down Effect: Manufacturers are able to produce more money, and create more jobs while creating more products
• Competition encourages growth and innovation
• High degree of economic freedom: consumers can buy whatever product they want from whichever producer they want