Invisible Hand

A term used by Adam Smith to describe his belief that individuals seeking their economic self-interest actually benefit society more than they would if they tried to benefit society directly. The statement “What's good for the country is good for General Motors, and vice versa” expresses essentially the same belief.

Invisible Hand

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.

Investopedia Commentary

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

Related Links

Economics Basics Tutorial

See also: Classical Economics, Dismal Science, Economics, Keynesian Economics, Laissez Faire