The Invisible Hand Theory

Topics: Economics, Adam Smith, Public sector Pages: 4 (1396 words) Published: July 11, 2013
Introduction

“The Enquiry to the Nature and Cause of wealth and Nation” by Adam Smith is one of the well-known influenced books in the economy. As express on the title of the book, it shows Adam great interest on wealth condition of a nation. He doesn’t locate the wealth on natural resources and climates but in division of labor and the “Invisible Hand” within competition of free-market. In Vietnam, healthcare, education and retirement services are opaque and inefficiency due to State monopolization. So by applying the “Invisible Hand” theory to Vietnamese market, it would be a shift of local economy. The theory “Invisible Hand”

In the book “The Enquiry to the Nature and Cause of the Wealth of Nation” by Adam Smith, he expresses three arguments: the Economizer Argument, the Local Knowledge Argument and the Invisible Hand Argument. (Otteson and Meadowcroft, 2011:99) [1] “Invisible Hand” is the term which is rarely mentioned in Adam’s work but has great influence in modern economy. In details, he wrote: “…Every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it…” (Smith, 1950: 9) [2], that simply means the entrepreneur is motivated by self-interest to satisfy their need but unintentionally by doing so, at the end it not only benefits himself but also to other people. People act unintentionally with local purpose in mind but it does not only to them. In contrast, Smith believes that it also includes concern about family and friends as well. Smith describe people as economizers and who want to save their time and energy while try to get enormous return of investment (Otteson and Meadowcroft, 2011:99). People use energy more efficiently benefits not only themselves but others. Since people are allowed to focus on narrow range of activities, it creates surplus in goods which they can sell or trade on the market....
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