Explain Adam Smith ideas of division of labor self-interest and the invisible hand?

Answer 1

The invisible hand is the hand that guides the economy. It is what guides the long run result. If everybody is making the most possible profit they can, which is what people usually do, then the economy will be guided to the greatest possible efficiency. Even if those people are willing to cheat people to make money, they will still have to cater to buyers and sellers, and thus will make everybody happy. The invisible hand more simply states that the amount of something produced will always, in the long run, lie on the supply and the demand curve. As too high prices will cause a surplus of goods, and too low causes a shortage, eventually, prices will be corrected.

As far as the labor self-interest idea. People are generally selfish. This is a good thing for the economy, because it rewards the productive. You will always demand the highest wage you can receive, and, in the long run, you will get it (if you deserve it). Obviously this was not true during the factory age, in which many were underpayed. However, this was the short run, and it was an example of monopsony, in which one business dominates the labor demand, and can charge whatever they want.