The Invisible Hand

Below is a quick video made by the Open University briefly explaining the Invisible Hand.

The Invisible Hand is a term coined by the economist Adam Smith in his papers of the Wealth of Nations. He said that governments should adopt a laissez faire policy of leaving the economy to itself, he believed that the economy would work, not due to benevolence (charitable acts) but because each person is out for themselves and this creates a working economy. He uses the example of the baker and the butcher, and states that they don’t produce food out of goodwill but in order to make money. The economy is drawn by competition and due to consumer sovereignty (consumers can choose what they purchase) will tend to purchase the cheapest good (assuming they are homogeneous; that is the same) and thus this will drive prices down.

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