Adam Smith and the Invisible Hand Argument

Adam Smith was a Scottish social philosopher and a pioneer of political economy. In 18th century, he came up with an analysis of market trends which explained about the production and consumption. After analyzing the various trends of the market, he came up with the conclusion that if markets left alone they have the potential of becoming efficient (Grampp, p. 441). Thus, he concluded that there was an invisible hand behind which guides the market for the positivity of the society.

The Invisible Hand

In late eighteenth century, Adam Smith, proposed a theory that stated that in a free and unregulated market where anybody can become a producer or a consumer. The demand of dissimilar goods and their production of the same kind will be equal, and the allocation of their resources for production and consumption of dissimilar goods will be optimal for the welfare of the society. He also suggested that the invisible hand monitors the demand and supply and helps the market to achieve the efficient level of production, distribution and consumption of goods (Ahmad, p. 137). This powerful idea of the invisible hand became very beneficial for the society and will provide the best social outcome which will be in favor of the market.

Significance of the theory

Keeping in consideration of the purpose and objective regarding economic understanding, Adam Smith has been the pioneer of all ebbs and flows regarding the economics of a country at a point in time. Adam Smith has been one of the most influential, yet most referred authors since the inception and introduction of the book titled 'The Wealth of Nations', introduced in 1776. The piece regarded as empirical knowledge regarding the evolution of economics; it narrates a detailed presentation regarding the Industrial Revolution, highlighting the phenomenon of free markets, thus being extremely beneficial with reference to traditional economies. In his remarkable book, The Wealth of Nations, Adam Smith argued that the importance of economics is liberty and that he believed his interest led to a more functional market economy and productivity. The idea of self-interest will open the door to a free market economy or free enterprise (Cannan, p.123). Moreover, Adam Smith illustrates how the economy should be a laissez faire that is free of government control as a command economy. In addition, Smith used the invisible hand argument, which is another important concept in economics.

There were several concepts that were highlighted and explained in detail regarding the purpose and objective of understanding and analyzing the booms, slumps, ebbs and flows within and outside an economy, highlighting several factors that would help understand the functioning and running of the economy. Amongst the most important contributions made by Adam Smith was the theory of Moral Sentiments more formally labeled and referred to as 'The Invisible Hand' (Ahmad, p. 137).

Since, above mentioned theory worked in a very methodical manner. It was considered as the counter part of democratic theory. In democratic theory, people choose their leader according to their ...