The concept of "political economy" was formed and became an interesting subject for many economists to research for long time ago. In many different economic conceptions, political economy has important roles because it expresses the face of each society through the interaction between economy and politics. According to Government and Social Development Resource Center (2008), the political economy is the economy related to the interaction between the economic and the political aspects of a society. In the eighteenth century, Europe entered the industrial revolution, capital accumulation. The mode of production changes made economic theory “ Mercantilism” became out of date that lead to the formation of Political Economy. It is the scientific foundation of today's market economy. A pioneer in the delegate system construction was Adam Smith. The theory “invisible hands” of Adam Smith is one of the famous examples that have a strong influence to the development of political economy. This essay will identify the main theatrical ideas of Smith and discuss about some advantages and disadvantage of this process in real life case.
Understanding Theory
Adam Smith is regarded as the father of economics; his writings have special value because of its enormous influence. According to Plus Magazine (2001): “"invisible hand" explanations are invoked to explain all sorts of phenomena, from scientific progress to environmental degradation”. Basically, Adam Smith states that the invisible hand is formed by a combination of self-interest, competition, demand and supply has the ability to regulate social resources, Ashraf, Camerer and Loewenstein (2005). If it is understood in a simpler way, with each person, when they engage in economic activities, people want to get more profits, higher sales because it means that their economy will be improved, their life also becomes prosperous. Those wishes originate from the selfishness, the demand to get the highest