Contrary to common misconceptions, Smith did not assert that all self-interested labour necessarily benefits society, or that all public goods are produced through self-interested labour. His proposal is merely that in a free market, people usually tend to produce goods desired by their neighbours. The tragedy of the commons is an example where self-interest tends to bring an unwanted result. It is important to note that the preference for the domestic economy has nothing to do with nationalist ideas or biases, but rather just the home-trade preference presented previously. Smith uses the metaphor in the context of an argument against protectionism and government regulation of markets, but it is based on very broad principles developed by Bernard Mandeville, Bishop Butler, Lord Shaftesbury, and Francis Hutcheson. In general, the term "invisible hand" can apply to any individual action that has unplanned, unintended consequences, particularly those that arise from actions not orchestrated by a central command, and that have an observable, patterned effect on the community.

Harvard economist Stephen Marglin argues that while the "invisible hand" is the "most enduring phrase in Smith's entire work", it is "also the most misunderstood." Naturally, again, such an attitude precluded a critical examination of institutions, and left as the sphere of Christian charity only those parts of life that could be reserved for philanthropy, precisely because they fell outside that larger area of normal human relations, in which the promptings of self-interest provided an all-sufficient motive and rule of conduct. ( Religion and the Rise of Capitalism, pp. 191–192.) Criticisms [ edit ] Joseph E. Stiglitz [ edit ]

Households maximize a utility function u h ( x h , z h ) {\displaystyle u The concept of the "invisible hand" is nearly always generalized beyond Smith's original uses. The phrase was not popular among economists before the twentieth century; Alfred Marshall never used it in his Principles of Economics [27] textbook and neither does William Stanley Jevons in his Theory of Political Economy. [28] Paul Samuelson cites it in his Economics textbook in 1948:

Some economists question the integrity of how the term "invisible hand" is currently used. Gavin Kennedy, Professor Emeritus at Heriot-Watt University in Edinburgh, Scotland, argues that its current use in modern economic thinking as a symbol of free market capitalism is not reconcilable with the rather modest and indeterminate manner in which it was employed by Smith. [33] In response to Kennedy, Daniel Klein argues that reconciliation is legitimate. Moreover, even if Smith did not intend the term "invisible hand" to be used in the current manner, its serviceability as such should not be rendered ineffective. [34] In conclusion of their exchange, Kennedy insists that Smith's intentions are of utmost importance to the current debate, which is one of Smith's association with the term "invisible hand". If the term is to be used as a symbol of liberty and economic coordination as it has been in the modern era, Kennedy argues that it should exist as a construct completely separate from Adam Smith since there is little evidence that Smith imputed any significance onto the term, much less the meanings given it at present. [35] Adam Smith goes on pointing out that the self-interest of individuals selects for those industries that create the greatest value. Thus, entrepreneurs will try to invest their capital in those industries where the production is expected to be of the greatest value, since they are also subject to self-interest (i.e. profit seeking): Smith may have come up with the two meanings of the phrase from Richard Cantillon who developed both economic applications in his model of the isolated estate. [7] Adam Smith starts by presenting the principle of self-interest and advances the conclusion he will reach near the end of the chapter, namely that self-interest results in public welfare: Hidden Hands tells the stories of the artisans, artists, scribes and readers, patrons and collectors who made and kept the beautiful, fragile objects that have survived the ravages of fire, water and deliberate destruction to form a picture of both English culture and the wider European culture of which it is part.The Japanese translation was published by Asuka Shinsha Publishing as Invisible Hand: How Is the Chinese Communist Party Reshaping the World? (見えない手 中国共産党は世界をどう作り変えるか; ISBN 9784864108010) on December 25, 2020. [5] Censorship attempts [ edit ] Only in The History of Astronomy (written before 1758) Smith speaks of the invisible hand, to which ignorants refer to explain natural phenomena otherwise unexplainable: It is also relevant to mention that, although the term “invisible hand” only appears explicitly here, this fundamental idea is present throughout The Wealth of Nations and the case treated in this chapter seems to be a particular example of this principle, rather than the principle itself, as noted by Smith ''is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention" There is only one instance where the invisible hand is explicitly mentioned in The Wealth of Nations, that is in Book IV, Chapter II titled ' Of Restraints Upon the Importation from Foreign Countries of Such Goods as Can Be Produced at Home'.

So far Smith has argued that individuals act in their self-interest and that there is a preference for home-trade over foreign or carrying trade. Now, he adds that the capital employed in the home-trade necessarily boost the national industry, and increases employment and revenues for the inhabitants of the country to a larger degree than if it were employed outside; this also implies that there would be more resources for the provision of defense, [3] which serves everyone and is, as Smith puts it, "the first duty of the sovereign". [18] So not only is in the best interest of the individual to employ their capital in home-trade over the alternatives, but it is also the option most beneficial for society . It is in this way that the interest of the individual and his society align: Some see an early reference to the concept of the invisible hand in 7th century Arabia where the Islamic prophet Muhammad, when asked by a merchant to fix prices of goods whose prices have shot up, Muhammad responds "It is but Allah [God] Who makes the prices low and high.", in other Hadith it is worded "Allah [God] is the one Who fixes prices". [12] [13] This has been interpreted and applied as the first application of a laissez faire free market where not even Muhammad can interfere in the free market. [14] Anders Chydenius [ edit ] Smith's theoretical U-turn from a micro-economical to a macro-economical view is not reflected in The Wealth of Nations. Large parts of this book are retaken from Smith's lectures before his visit to France. So one must distinguish in The Wealth of Nations a micro-economical and a macro-economical Adam Smith. Whether Smith's quotation of an invisible hand in the middle of his work is a micro-economical statement or a macro-economical statement condemning monopolies and government interferences as in the case of tariffs and patents is debatable. a b Meyer, Arline (March 1995). "Re-dressing classical statuary: The eighteenth-century 'Hand-in-Waistcoat' portrait". Art Bulletin. 77 (1): 45–63. doi: 10.2307/3046079. JSTOR 3046079.

Church Times/RSCM:

The first published appearance of the invisible hand metaphor in Smith occurs in The Theory of Moral Sentiments (1759) in Part IV, Chapter 1, where he describes a selfish landlord as being led by an invisible hand to distribute his harvest to those who work for him: The domestic servant ... is not employed as a means to his master's profit. His master's income is not due in any part to his employment; on the contrary, that income is first acquired ... and in the amount of the income is determined whether the servant shall be employed or not, while to the full extent of that employment the income is diminished. As Adam Smith expresses it "a man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants." [26] Hidden Hand: Exposing How the Chinese Communist Party Is Reshaping the World is a 2020 book by Australians Clive Hamilton and Mareike Ohlberg, and is a follow-up of Hamilton's 2018 book Silent Invasion. The book details the claim of "the Chinese Communist Party’s global program of influence and subversion, and the threat it poses to democracy". [1] [2] Proponents of liberal economics, for example Deepak Lal, regularly claim that the invisible hand allows for market efficiency through its mechanism of acting as an indicator of what the market considers important, or valuable. [40] Understood as a metaphor [ edit ] According to Emma Rothschild, Smith was actually being ironic in his use of the term. [38] Warren Samuels described it as "a means of relating modern high theory to Adam Smith and, as such, an interesting example in the development of language." [39]