Adam Smith’s view of the role of self-interest in the market

Introduction:
It is necessary to realize the aspect within a financial institution/market; self-interest has
been of immense importance. However, many economic theories exist regarding self-
interest but the theory of Adam Smith has been popular among them over the years.
So, formulating each and every and making a logical comparison, self-interest can be
defined as seeking one’s own benefit serving as a motivator for any economic based
activity. It also won’t be wrong to say that the immense competition in the market has
also been a result of self-interest on part of individuals taking an effective part in these
activities.
Importance of Self-interest
Realizing the importance for self-interest it won’t be wrong to say that there are two
aspects. One aspect is regarding the psychological impact whereas the other impact is
about its impact on the economy. Psychological perspective clearly states that self-
interest is associated with positivity thereby developing a positive attitude towards stuff.
On the contrary, the economic perspective is regarding the fact that one’s economic gain
is associated with self-interest such that the individual dependency upon one’s own self
regarding any economic activity.
Furthermore, we’ll be reflecting upon the relationship between self-interest and economic
gain with respect to the theory of Adam Smith. If the psychological perspective is taken
into account, then it won’t be wrong to say that one’s self-interest is something what
makes him or gets him/her into that profession. This can also be termed as obsession or
passion. Examples include passionate people in different industries like bakers, chefs,
engineers, doctors etc.
So, through the research work of Adam Smith as well as several other economics, it has
been found out that individuality with respect to one’s interest or self-interest associated
with the market trends and is also often named as consumer interests. With respect to a
financial institution or company shares, the upward/downward trend is associated with
that.
Prior to an individual self-interest, people sharing same interests makes the market a lot
more competitive and saturated. That is the prime reason for increasing market values
because the consumer interest in particular is shifted towards that particular market. So,
there are a lot of factors in addition to self-interest which related to the success rates for
businesses or institutions.
Adam Smith’s Theory
Adam Smith is a world renowned economist who has described his views on market,
man, business ethics and also some other relevant literature. So, it won’t be wrong to say
that his work has been very influential throughout the years. In his book “An Inquiry into
the Nature and Causes of the Wealth of Nations”, he has clearly described and reflected
upon the importance of self-interest regarding the economy through the proposition of the
“Invisible Hand” theory.
The “Invisible Hand” theory clearly reflects upon the fact that competition and self-
interest are two forces that are opposite in nature but is mandatory for both of them to
counter-exist at the same time. It can be thought about in such a way that there exists a
service provider regarding a tech related field, likely a web developer or an SEO
optimizer. He/she will be providing their services to their clients at an associated cost
agreed upon between them. Hence, the service provider will be providing a great service
thereby delivering according to the clients’ expectations. If the provider won’t provide up
to mark services, then it is possible that the client relationship will be seriously effective
and he/she for sure will find a new service provider as per their requirements. So, this
reflects productivity and competitiveness at the same time. It is important for them to
counter exist at the same time.
The success rates and upward trends for a particular economic market are a reflection of
the co-existence for both of these markets. So, it won’t be wrong to say that the self-
interest according to the invisible hand theory has more effect on the supply and demand
considering economic benefits. Consumers sharing same interests with respect to a
particular economic activity can lead to an increased demand thereby leading to increased
profits in both the short and long run.
Furthermore, the “Invisible Hand” theory as proposed by Adam Smith has also been
endorsed by a number of other economists. The relevance and acceptance for the theory
is purely dependent of the fact that the economic benefit for both the consumers and
suppliers has been associated. Other aspects to the theory reflect upon the increase for the
market capital leading to increased payment of taxes and bills leading to a sustainable and
yet more stable economy.
Associated with Government Regulations
With respect to the associated markets and the Adam Smith theory, government
regulations have also been associated in several ways. So, there are mixed opinions
regarding the theory that clearly indicate both beneficial and fraudulent at the same time.
The first aspect reflects upon the fact that the self-interest is associated with the
regulation of a particular market that in turn benefits the entire country’s economy. The
second aspect reflects upon the fact that there also exists a fake pump in the market
giving rise to artificial trends on short term basis such that these damage the economy in
a major way in the long run.
Summing up all the findings and reflecting upon the correlativity with the government
regulation, it won’t be wrong to say that on part of the government extra regulation and
other safety measures as well as related policies are necessary to implement in order to
provide major losses in the long run.
Conclusion:
In this essay, Adam Smith’s theory of “Invisible Hand” has been described that clearly
reflects upon the different aspects of personal/self-interest and how these have an impact
on the entire economy. In other words, market trends are clearly associated with the
consumer interest highlighting the major benefits that how these trends are of benefit to
them.
References
Fiori, S. (2005). Individual and self-interest in Adam Smith's Wealth of Nations. Dans Cahiers d'économie
Politique. Retrieved from https://www.cairn.info/revue-cahiers-d-economie-politique-1-2005-2-
page-19.htm

KENTON, W. (2021). Self-Interest. Retrieved from https://www.investopedia.com/terms/s/self-

interest.asp

Morrison, J. (2020). The Role of Self-Interest and Competition in a Market Economy - The Economic
Lowdown Podcast Series. The Economic Lockdown series. Retrieved from
https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-3-the-role-
of-self-interest-and-competition-in-a-market-economy