invisible hand

n.
An economic principle, first postulated by Adam Smith, holding that the greatest benefit to a society is brought about by individuals acting freely in a competitive marketplace in the pursuit of their own self-interest.

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Description of business motivation in a free economy.
Reference to the doctrine of Adam Smith that the pursuit of selfinterest promotes the public good. Because “the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry,” then each person, in “directing [his] industry in such a manner as its produce may be of the greatest value,” is “led by an invisible hand to promote an end which 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.” The invisible hand doctrine is one of the cornerstones of the free enterprise system.

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Term introduced by Adam Smith as a metaphor for the working of the uncoordinated market: ‘every individual . . . 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’ (Wealth of Nations, 1776). Smith, unlike some of his modern followers, did not believe that actual markets were necessarily coordinated only by the invisible hand of perfect competition.

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.

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

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