What does Adam Smith mean of invisible hand - Research Paper Example

Adam Smith originally meant that the mechanism of the invisible hand is a result of the market settling the distribution of goods and the prices between what the producers want to produce and what the consumers chooses freely what to consume. As a result, producers will have to create goods that are cheaper to produce undermining competition and gain market share. This competition will ultimately benefit the individual consumer and hence, the greater community as a whole. To paraphrase Adam Smith in his book “An Inquiry into the Nature and Causes of the Wealth of Nations” By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it (Smith, 1776). Recent interpretation of Smith’s invisible hand elaborated that “Adam Smith argued in The Wealth of Nations, 1776, that, under the mechanism of a free market, the pursuit of profit leads each participant to act to the material advantage of society as a whole, as though ‘led by an invisible hand to promote an end which was no part of his intention”. (2007). And though most modern scholars interpret Smith’s invisible hand with regard to investment as preferential to the domestic economy, this was