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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.”

The invisible hand metaphor is used to illustrate how free market dynamics make things happen for the greater good of society.  It is often cited as the basis for laissez-faire economics.  The idea is that individuals, acting in their own self-interest, compete for scarce resources.  Because of this competition, resources are used in the most efficient and effective way, creating more wealth for both the individual and the economic system as a whole.  In Smith’s metaphor, it’s as if an invisible hand guides the process, leading to the most beneficial outcome for everyone. Society benefits because businesses make more profit, which leads to a better quality of life for all.

Critics of the invisible hand theory argue that it is not as strong now as is was in the agrarian-based economy during Smith’s lifetime.   Large, powerful corporations, highly effective marketing campaigns and inefficient financial markets often block the invisible hand, preventing it from guiding scarce resources to their highest and best use.

Supporters argue that the invisible hand theory is essential for free markets and society to work in the most efficient and fair way. 

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