Sociology Index

INVISIBLE HAND OF THE MARKET

Laissez Faire, Market Economy, Libertarianism, Anarchism

'Invisible hand of the market' is a phrase associated with the great classical economist Adam Smith (1723-1790) referring to the self-regulating capacity of free markets in free market economics.

Free markets, through the mechanism of supply and demand, are assumed to provide the optimal allocation of scarce economic resources to alternate uses by its 'invisible hand of the market' without the need for any conscious direction or control.

The term Invisible Hand of The Market is used by economists to describe how factors and forces like supply, demand and profit margin work together to create opportunity and provide balance in free markets.

"There is no doubt that the invisible hand of the market can outperform the heavy hand of regulation." - Remark of Governor Christine Todd Whitman, EPA Conference on Market Mechanisms and Incentives.

During the first revolution in manufacturing, the "invisible" hand of the market was replaced by the "visible" hand of corporate managers - Alfred Chandler. If this vision of Napsterization of the supply chain comes to pass, we will see the "visible" hand of managers replaced by the "virtual" hand of networks.

The Mystery of Adam Smith’s Invisible Hand Resolved - Several new interpretations of Adam Smith’s invisible hand have recently been published. These interpretations attempt to bring Smith forward in time and to fashion him in the image of the modern general equilibrium welfare theorist. We go back in time and find the source for both of Smith’s economic applications of the invisible hand in Richard Cantillon’s model of the isolated estate. We know what Smith read and dubbed the invisible hand. - Mark Thornton

The really unfortunate thing about the famous "invisible hand" is that so many seem to understand it to mean no hand at all, which was certainly not Smith's understanding. - Bruce Wilder

John K. Galbraith, Paul Samuelson and Solow shone in splendid isolation against the "market bias" of Chicago University economists, like Milton Friedman, who worshipped the "invisible hand" of the market and moulded the public policies of the West. 

Efficient Resource Utilization
An issue which is related to the market economy and traced back to Adam Smith concerns the normative properties of the market allocation of resources. Will the fulfillment of self-interest through the "invisible hand" of the market mechanism lead to efficient utilization of scarce resources in society? Will the resources be used and production adapted so as to result in a situation without any waste whatsoever?

The invisible hand preventing an energy crisis - Chietigj Bajpaee 
In addressing mounting oil demand we have the invisible hand of the market adjust consumer preferences as prices rise and supply falls. After the oil shocks of the 1970s, industrialized countries reduced their reliance on oil relative to other energy sources and improved on energy conservation and efficiency through the use of new technologies and practices such as better insulation in the homes (micro-conservation) and shifting away from heavy industries that rely on high levels of energy consumption (macro-conservation).

Too great a reliance on the 'invisible hand' of the market is pushing the world toward unsustainable levels of inequality of condition and deprivation. Efficient markets require a healthy, well-educated and well-informed population and the social stability that grows out of democratic governance and an acceptable level of public provision.

Letizia Paoli, 2003. ‘The Invisible Hand of the Market: The Illegal Drugs Trade in Germany, Italy, and Russia’, in Petrus C. van Duyne, Klaus van Lampe and James L. Newell, eds., Criminal Finances and Organising Crime in Europe: 19-40. Nijmegen: Wolf. 

Research Coordination or "Invisible Hand"? - W. Miklius, J. O. Gerald
Journal of Farm Economics, Vol. 49, No. 3 (Aug., 1967)
An effective price and market system is absent, and therefore the invisible hand of the market plays a minor role in guiding research activities.

Inside Information on 'The Market' - Jonathan Benthall
Anthropology Today, Vol. 7, No. 4 (Aug., 1991)
"We all know that Adam Smith coined the phrase 'the invisible hand of the market', which Galbraith has called the most famous metaphor in economics. ..." "Adam Smith introduced the image of the "invisible hand" - now one of the most influential metaphors of economic thought. When each individual pursues his or her own advantage, he or she is "led by an invisible hand to promote an end which was no part of his intention," thereby doing more for society than if he or she had deliberately set out to do so."

According to the invisible hand of the market theory, the sustainable competitive advantage for companies is the people who work there. The unprecedented economic growth of recent times is due in part to the explosive growth of knowledge economy and the transformation of work from muscle power to brain power.

Market Magic is a web-based market simulation designed to introduce students to key concepts in managerial economics. The laws of supply and demand are demonstrated when students act as buyers and sellers in a theoretical market. As the market progresses through a number of rounds and the price converges toward an equilibrium point, the "invisible hand" of the market reveals itself.

Money creation in stock exchanges takes place in the private sector. That means that it is subject to the "invisible hand of the market". There may be temporary disruptions, but markets always return to a state of equilibrium. A situation in which the demand and supply of money, goods and services are more or less in line with each other. Temporary imbalances are nothing to worry about, as sooner or later, the "invisible hand of the market" will adjust these automatically. 
Economists have no problem with money creation by the private sector. As long as the invisible hand of the market is allowed to do its work the balance will be restored. Economic purists object to government intervention in markets because any government rule, regulation or other form of action that affects the market fetters the invisible hand and affects the hand’s capacity to restore equilibrium.