Do you believe in magic?
When I was a child, I often dreamt about moving things by my mental power, or with some magic spells, which is called Telekinesis. I want an invisible hand to help me move things.
This was only a dream in my childhood though.
However, when I grow up and go to college, I realize that the “invisible hand” really exists in our life. Do you know what is it?
Actually, in economics, the invisible hand is a metaphor that refers to the unseen force that drives the free market economy.
The term was introduced by the famous economist, Adam Smith. In his opinion, individual’s subjective self-interest behavior in market activities will bring objective altruistic results.
For example, you order a pizza online, this is due to your self-interest behavior. The delivery driver will send your pizza to you house, so he can make money. You don’t consider how other people make their money, so does the delivery driver. This is free exchange. You benefit each other through free exchange. Adam Smith called this kind of benefit as “social benefit”.
In this case, it is the invisible hand that contributes to this deal. Everyone is driven by their personal interest and finally they benefit each other. This is the power of free market.
Like Adam Smith pointed in his book, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
Supply and demands are always here if human exists. So does the market. Through the changes of prices of goods and services, the invisible hand can adjust the supply and demand relationship in a market, which is effective.
However, invisible hand can’t do everything. It is not perfect. Sometimes we still need “visible hand” to adjust the market.