Invisible Hand

Loading the player...

What does 'Invisible Hand' mean

Invisible hand is a term coined by economist Adam Smith in his 1776 book "An Inquiry into the Nature and Causes of the Wealth of Nations". In his book he states:

"Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it ... 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. Nor is it always the worse for society that it 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. I have never known much good done by those who affected to trade for the public good."

Thus, the invisible hand is essentially a natural phenomenon that guides free markets and capitalism through competition for scarce resources.

BREAKING DOWN 'Invisible Hand'

Smith assumed that individuals try to maximize their own good (and become wealthier), and by doing so, through trade and entrepreneurship, society as a whole is better off. Furthermore, any government intervention in the economy isn't needed because the invisible hand is the best guide for the economy.

RELATED TERMS
  1. Invisible Trade

    Business transactions that occur with no exchange of tangible ...
  2. Adam Smith

    An 18th-century philosopher and free-market economist famous ...
  3. Invisible Assets

    An item of value that is intangible and that cannot be seen, ...
  4. Promoter

    An individual or company that, for a fee, helps raise money for ...
  5. Promotional Budget

    A specified amount of money set aside to promote a business' ...
  6. Promotion

    1.In terms of a career, a promotion refers to the advancement ...
Related Articles
  1. Economics

    What does "Invisible Hand" Mean?

    Invisible hand is a reference to a famous metaphor used by economist and philosopher Adam Smith in his classic 1776 book entitled “An Inquiry into the Nature and Causes of the Wealth of Nations.”
  2. Economics

    Adam Smith's Legacy

    Adam Smith popularized many of the ideas that created classical economics.
  3. Entrepreneurship

    Adam Smith And "The Wealth Of Nations"

    Adam Smith's 1776 classic may have had the largest global impact on economic thought.
  4. Economics

    Economist Guide: 3 Lessons Adam Smith Teaches Us

    Learn three critical lessons about economics from 18th century philosopher Adam Smith, considered by many to be the father of economics.
  5. John D. Rockefeller: Famous or Infamous

    Rockefeller’s biographer Ron Chernow said it best: “his good side was every bit as good as his bad side was bad.” Anywhere you look in Rockefeller’s actions or thought ...
  6. Professionals

    Warren Buffett's Frugal, So Why Aren't You?

    The Oracle of Omaha has a net worth in the billions, but his lifestyle is not as rich as you may think.
  7. Wealth Management

    Warren Buffett’s Frugal, So Why Aren’t You?

    Aside from his renowned investing prowess, Buffett is legendarily frugal.
  8. Forex Education

    The Most Famous Forex Traders Of All Time

    The five most famous forex traders share common virtues such as strong self-confidence.
  9. Dictionary

    J.P. Morgan: Famous or Infamous

    J.P. Morgan represents the values of bourgeois capitalism taken to their logical extreme, and as such he is an intensely polarizing figure. It’s easy enough to see why some admire him. ...
  10. Investing Basics

    Warren Buffett Biography

    Warren Buffett is one of the top investors in the world. Learn more about his amazing life and path to success.
RELATED FAQS
  1. How does the invisible hand affect a capitalist economy?

    Take a deeper look at how the invisible hand of the market works and why it is so crucial for understanding how capitalist ... Read Answer >>
  2. What does the term 'invisible hand' refer to in the economy?

    Discover and understand the concept of the "invisible hand" as explained by Adam Smith, considered the founder of modern ... Read Answer >>
  3. What is the affect of the invisible hand on consumers?

    Discover how consumers help initiate and benefit from the invisible hand of the market, which naturally coordinates trade ... Read Answer >>
  4. What is the affect of the invisible hand on the government?

    Find out why government policy goals are often frustrated by the same forces that guide the invisible hand of the market ... Read Answer >>
  5. How does the invisible hand affect prices in the Microeconomic Pricing Model?

    Find out why the microeconomic pricing model cannot accurately describe economic phenomena, and how it misses the real causes ... Read Answer >>
  6. How is the invisible hand affected in a communist or socialist economy?

    Discover why the invisible hand of the market is compromised by socialist and communist economies, where the government controls ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center