What exactly is this principle of the "invisible hand" in relationship to the free market?

1 Answer
May 31, 2018

The free market is self-regulating.

Explanation:

The term "The Invisible Hand" was first introduced by Adam Smith in his book "The Theory of Moral Sentiment" (1759). He later expanded it to apply to economics in his book "The Wealth of Nations" (1776), for which he is famous.

Smith's theory of markets was premised on the concept that if everyone acts in his/her self-interest, the best possible outcome will happen "as if guided by an invisible hand". Prices will reach their natural level, production and consumption will balance out, and the greatest benefit for the greatest number will result.

It is important to note that Smith saw the process as being completely mechanical, impersonal, and automatic; he did not literally believe that "an invisible hand" guided the outcome.