Running head: INVISIBLE 1

HAND OF CAPITALISM

Invisible Hand of Capitalism

Shazia Farooq

Institute

Course

Professor Name

10/21/2020
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Adam Smith and Invisible Hand Theory

Adam Smith was a British philosopher, author, and well-known economist of the 18th

century. He was a moral philosopher for the people and gave the concept of political economy,

known as the "The Father of Capitalism" or "The Father of Economics." He wrote many books

on the political economy topic from which the most common books are "The Theory of Moral

Sentiments" and "An Inquiry into the Nature and Causes of the Wealth of the Nations." He also

kept the foundation of the classical free-market economy to innovate this field (Ross, 2010). In

his first classical book, "An Inquiry into the Nature and Causes of the Wealth of the Nations," he

proposed the theory of invisible hands, which showed the capacity of markets to control

themselves by various methods such as supply and demand, competition, and self-interest. He

explained this concept by saying that the unobservable market force that facilitates the demand

and the supply of products and goods in the market to get equilibrium automatically is defined as

the invisible hands. According to Smith, the economic system plays the most important effect on

capitalism. Private development of the production methods and voluntary exchange system is

necessary for capitalism. This term is entirely guided by the efficient and spontaneous allocation

of the available resources. Smith's invisible hand of capitalism suggests that profit-seeking and

self-centered people have more chances to gain benefits compared to the people who use

political methods for enhancing and improving society's condition (Pack, 1996).

Merits of Invisible Hand Theory

The theory is considered an essential part of the political economy. The research has

determined that the economic level has been increasing only due to Smith's efficient work in this

field. This theory leads to the foundation of future proponents of various other capitalisms, such

as laissez-faire capitalism. This theory helps in solving multiple problems regarding Wheat
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production. A huge crop was destroyed in Ukraine, due to which the supply of wheat became

decreased, and wheat prices tend to increase worldwide. The places that were not affected by

blight started selling their crops at high prices, but after high wheat production, the price again

falls back. The actors handled the situation with the help of this theory, as it has been determined

that Smith thought that selfishness is not a bad thing as it is required for survival. Thus invisible

hand is the work of various economic actors to control voluntary activities (Harrison, 2011).
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References

Ross, I. S. (2010). The Life of Adam Smith. Oxford University Press.

Pack, S. J., & Dimand, R. W. (1996). Slavery, Adam Smith's Economic Vision, and the Invisible

Hand. History of Economic Ideas, 253-269.

Harrison, P. (2011). Adam Smith and the history of the invisible hand. Journal of the History of

Ideas, 72(1), 29-49.