Adam Smith's Invisible Hand

  Adam Smith Works

This was Mayer’s assessment of how the Invisible Hand works: “Just as rats rushing to leave a sinking ship re-establish its buoyancy, so in the individual pursuit of our own self interest we collectively confer benefits on those who lie on the other side of the market.”

"The Invisible Hand is perhaps the most important—and most controversial—metaphor in economics. For fans of markets, it is synonymous with free individuals having their commercial interactions informed and guided by the feedback mechanism of the price system. Market critics, by contrast, refute the notion that even good results—let alone the best—could come from myriad disjointed individual decisions guided by some mystical-sounding metaphor. They claim that the Hand is tainted by greed and exploitation, leads to inequity and dangerous corporate power, and threatens not merely resource depletion but planetary disaster.

 The Great Insight

"The concept—properly understood—is central to Smith’s insights, although he uses the phrase only once in The Theory of Moral Sentiments and once in An Inquiry into the Nature and Causes of the Wealth of Nations. In Moral Sentiments, he suggests that “The rich … are led by an Invisible Hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants.” In other words, they “share the wealth” despite themselves. 
"In Wealth of Nations, Smith uses the term to refer to a merchant naturally preferring and supporting his domestic economy. “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.”

"This could be taken to suggest that Smith was promoting local investment over the foreign variety. In fact, he was referring to people’s natural—and wise—tendency to stick to markets that they know. The context of this passage was Smith’s opposition to the artificial promotion of the export trade, but he is also clearly pointing to the more extensive benefits of self-interested commercial behaviour.

"Smith’s most important indirect reference lies in his example of how the market provides for even the most humble labourer. To accommodate the labourer’s simple needs, Smith observed, required an amount of cooperation that “exceeds all computation.” Smith took as his prime example the labourer’s plain woollen coat, which, “as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen.” Smith enumerated all the parts of the wool industry, all the merchants and carriers, all the elaborate machinery—from ships and mills to looms and furnaces—that would have been involved. Producing the rest of the workman’s attire, and his tools, home, furniture and utensils, similarly required vast interconnected industries. “Without the assistance and co-operation of many thousands,” wrote Smith, “the very meanest person in a civilized country could not be provided, even according to what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.”

"Here is the Invisible Hand in all its productive but taken-for-granted glory." . . .

Happy birthday, Adam Smith: The invisible hand just slapped Disney

In recent filings, Disney appears to acknowledge that Smith’s invisible hand is giving the “House of Mouse” the middle finger. In a new corporate disclosure, Disney acknowledges that its controversial political and social agenda is costing the company and shareholders.