Invisible Hand

Father of modern economics and capitalism, Adam Smith was an influential 18th century philosopher who paved the road towards capitalism in his book An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776. Prior to An Inquiry into the Nature and Causes of the Wealth of Nations, it was believed that a country’s wealth was determined by how much gold and silver was placed in the king’s treasury. This system is referred to as mercantilism.

Smith took a different approach, proposing that a nation’s wealth was measured by one’s driven self-interest, total production and commerce instead. Not only did he propose this idea of self-interest, but he also suggested the theory of division of labor and the invisible hand.

Adam Smith believed the economy would prosper with the division of labor, meaning large jobs would break down or divide into smaller discrete components each of which is assigned to a particular person. By doing this, one is able to specifically focus on his or her profession becoming an expert in that one area of production.

In response to this, one is able to increase speed in their performance. Thus, a productive use of labor is practiced because both time and money are preserved. To explain this theory, Smith used the example of a pin factory. Originally pin makers would make very few pins a day, about a dozen pounds at the most. However, when these workers were assigned to complete only one small task, they were able to produce thousands more pins a day.

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A lot more than they previously were able to manufacture. By assigning a worker to complete a far simpler operation and educating them in their specialized job, the workers skill will increase allowing him or her to work efficiently and productively. A worker was also able to conserve time because he or she did not need an excess amount of training nor did they have to use as many tools as they had to before. It also eliminated the need of simultaneously transitioning from one task to another for several days a week. Efficiency also increased through the use of machinery which helped speed up the production process. Through these new tactics, large quantities of goods were produced allowing customers to have access to a diverse set of products. Additionally, as workers concentrated and gained particular skills to go along with their area of production, the quality of goods was more likely to come out good because people knew what they were doing rather than just freehanding it and wishing for the best.

Essentially, the “invisible hand” consisted of self interested individuals trading with one another without the interference of the government. People were able to produce sufficient quantities of goods based on what society needed without being told anything. Rather than doing good, Adam Smith believed that the government would be doing more harm to the economy by involving itself in both the trade and market industry. With individuals having the ability to do as they please, Adam Smith believed self-interest promoted an efficient use of resources. One of his biggest concerns in government involvement was monopolies. A monopoly was an individual or group who had complete control over a product of business. Monopolies brought down businesses because the get in the way of innovation, prices will primarily be high especially when there’s no competition, and most of the products manufactured are of poor quality. With unregulated markets where a business owners controlled themselves, you have constant competition. Competition thus means that products are both better and cheaper allowing life for the common folks to be better. For example, people go into businesses that are flourishing subsequently like restaurants. Because people need food to live restaurant businesses would prosper. However if the government made the decisions on what businesses to focus in on, it wouldn’t represent the common people as much but the elite instead. So, if the government forced the production of rocks, (as an example) even though nobody wanted them or needed them, then you are not helping the common folks at all.

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Invisible Hand. (2022, May 10). Retrieved from https://paperap.com/invisible-hand/

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