WikipediaExtracts:Invisible hand
Extracted from Wikipedia --
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The invisible hand is a metaphor inspired by the Scottish moral philosopher Adam Smith that describes the incentives which free markets often create for self-interested people to act in the public interest. Smith originally mentioned the term only in specific examples. It is used once in his Theory of Moral Sentiments when discussing the concentration of wealth. More famously, it is also used once in his Wealth of Nations, when arguing that international traders can be trusted if the incentives are right, often making it unnecessary for governments to intervene.
Twentieth century economists such as Paul Samuelson popularized the use of the term to refer more generally to unintended greater social impacts brought about by individuals acting in their own self-interest. The idea of trade and market exchange perfectly channeling self-interest toward socially desirable ends is a central justification for newer versions of the laissez-faire economic philosophy which lie behind neoclassical economics.
Smith himself described the term "invisible hand" as rhetorical and unscientific, and did not use it to refer to any general principle of economics. His argumentation against government interventions into markets were based on specific cases and were not absolute. While Smith's arguments against government management of the economy were very popular, the ideas were not new. Smith himself cites earlier enlightenment thinkers such as Bernard Mandeville. Smith's invisible hand argumentation may have also been influenced by Richard Cantillon and his model of the isolated estate.
Because of the modern use of this term to refer to a key neoclassical assumption, a central disagreement between economic ideologies is sometimes viewed as a disagreement about how well the "invisible hand" works. For example, it is argued that tendencies that were nascent during Smith's lifetime, such as large-scale industry, finance, and advertising, now reduce its effectiveness.
