Adam Smith and the Invisible Hand

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ADAM SMITH AND THE INVISIBLE HAND
By: Lucy Jarvie
Class: Fundamentals of Macroeconomics
Professor: Ken Baldwin
Date: November 17th, 2010

Adam Smith was considered to be the founder of modern economics. He was the innovator of capitalism and free markets which are explained in his 1775 book, “The Wealth of Nations”. Adam Smith was a positive influence on the structure of our economy as we know it today. Smith opposed government intervention with businesses and noted that self interest, completion, and supply and demand are the key factors in an economy. This theory was called, “the invisible hand”. The consumer should be allowed to choose freely, without the government’s interjection, what to buy and the producer to be allowed to sell whatever they please. This free-market system is what drives us in wanting to be satisfied as a consumer and have the satisfaction with increase in sales for the producer. The results would show a higher production of goods and services that would lead to an increase in supply and lower prices. Adam Smith wanted the economy to work independently from the government. Although he felt that the government taxation should be still necessary, but there should be that force of self-interest or also known as an “invisible hand” pushing both the producer and consumer. This push or force will results in an increase capital gain because the consumer will be getting the best product with a completive pricing and the producer will be getting an increase in sales. Adam Smith saw the need for a system that will benefit our society and the “invisible hand” is a strong theory that he came up with to get to that goal. When individuals push themselves to put in the effort of satisfying their selfish needs that in turn will show positive attributes in the economy. In today’s present economy, Smith’s Laissez-Faire capitalism principals are still in effect. It maintains our free market systems. There are positive results for entrepreneurs, for...
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