What impact did Adam Smith have on society?

“Led by an invisible hand to promote an end which was no part of his intention... By pursuing his own

interest he frequently promotes that of the society more effectually than when he really intends to promote

it.”​1​ Regarded as the father of economics, Adam Smith’s work in economics has paved the way for

modern economists and is comparable with other famous scientists such as Charles Darwin’s

contributions to evolution. Possibly Adam Smith’s greatest contribution to modern economics was his

concept of the invisible hand. But what was the invisible hand?

Smith described the invisible hand as a force that manipulated demand and supply in a purely capitalist

economy where self-interested individuals making rational choices to benefit themselves would give the

wider society what was needed to stimulate economic growth. The term relates to Smith’s preferred idea

of capitalism, ​laissez-faire​ capitalism, meaning to let the market take its own course and find equilibrium

without government intervention​2​. The invisible hand manifests in a scenario with producers wanting to

make more money, and therefore producing goods that consumers want to buy to increase their own

profits. With this, both the consumer and the producer profit. The producer makes money, and the

consumer gets the goods they want. The invisible hand is considered to be the best way of organising an

economy because a free market economy consisting of people seeking to better themselves is superior to a

command economy with the government deciding what is produced.

Moreover, free markets have long been known to contribute more to economic growth than command

economies. This is on account of the competition between firms that the invisible hand encourages​3​ by

1
​A.Smith, ​An Inquiry into the Nature and Causes of the Wealth of Nations, ​Metalibri, Lausanne, 2007,
pp. 349-350, Ibiblio, accessed 14 Nov 2020.
2
​C.Majaski and M.Sonnenshein. ‘Invisible Hand Definition’ ​Investopedia ​[website],
https://www.investopedia.com/terms/i/invisiblehand.asp​, accessed 16 Nov 2020.
3
​C.Seabury ‘The Cost of Free Markets’ ​Investopedia ​[website],
https://www.investopedia.com/articles/economics/08/free-market-regulation.asp​, accessed 17 Nov 2020.
influencing supply and demand. This is caused by firms recognising that certain goods will make them

more money due to high demand, and therefore competing to sell that product at a slightly cheaper price

than their competitor to accrue more profit. Ultimately, this will drive the price down to what Smith called

the “natural price”, which is just enough to pay for production costs​4​.

An example of a capitalist system surpassing a command system is North Korea vs Singapore. North

Korea is the world’s least free economy whereas Singapore is the world’s freest economy​5​. Singapore’s

population is 5 times smaller than North Korea, yet their GDP is around 8 times larger​6​. While most of

this can be chalked down to Singapore’s thriving manufacturing industry​7​, it is no secret that economies

with some degree of capitalism have historically outperformed command economies.

In closing, Adam Smith’s invisible hand revolutionised contemporary views of the free market’s

advantages. Smith was a pioneer of economics as it is seen today and has proved that an economy does

not require outside intervention to succeed and grow.

4
​Merriam-Webster ‘Natural Price’ ​Merriam-Webster ​[website],
https://www.merriam-webster.com/dictionary/natural%20price​, accessed 21 Nov 2020.
5
2020 Index of Economic Freedom. ‘Country Rankings’ ​2020 Index of Economic Freedom ​[website],
https://www.heritage.org/index/ranking​, accessed 25 Nov 2020.
6
​Georank ‘North Korea vs Singapore: Economic Indicators Comparison’ ​Georank [​ website],
https://georank.org/economy/north-korea/singapore​, accessed 3 Dec 2020.
7
Guide Me Singapore ‘What makes the Singapore economy tick?’ ​GuideMeSingapore [​ website],
https://www.guidemesingapore.com/business-guides/incorporation/why-singapore/singapore-economy---
a-brief-introduction​, accessed 5 Dec 2020.
 Bibliography

2020 Index of Economic Freedom ‘Country Rankings’ ​2020 Index of Economic Freedom

[​https://www.heritage.org/index/​ last accessed 25 Nov 2020]

Smith, Adam, ​An Inquiry Into The Nature And Causes Of The Wealth Of Nations.​ Metalibri, Lausanne,

2007, Ibiblio, accessed 14 Nov 2020.

Seabury, Chris ‘The Cost of Free Markets’ ​Investopedia​. 8 Feb. 2020.

[​https://www.investopedia.com/articles/economics/08/free-market-regulation.asp​ last accessed 17

Nov 2020]

Majaski, Christina and Sonnenshein, Michael ‘Invisible Hand Definition’ ​Investopedia​. 23 Jul. 2020.

[​https://www.investopedia.com/terms/i/invisiblehand.asp​ last accessed 16 Nov 2020]

Georank ‘North Korea vs Singapore: Economic Indicators Comparison’ ​Georank.​

[​https://georank.org/economy/north-korea/singapore​ last accessed 3 Dec 2020]

Guide Me Singapore ‘What makes the Singapore economy tick?’ ​GuideMeSingapore.​

[​https://www.guidemesingapore.com/business-guides/incorporation/why-singapore/singapore-eco

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Merriam-Webster ‘Natural Price’ ​Merriam-Webster.​

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