Invisible hand of the market

Invisible hand of the market

In work on a research of the nature and the reasons of wealth of the people the principle of an invisible hand of the market was formulated by Adam Smith who described mechanisms of foreign trade. Arguing that revenue of society depends on what sum is paid for a product of its work, the author of work came to a conclusion that each person supports that branch of the domestic industry in which he is interested. The resident of the country, even without suspecting about it, serves the interests of all society though thinks that he satisfies the requirements. Quite so the principle of an invisible hand of the market works: it is an objective market mechanism which coordinates all decisions of buyers and sellers.

Invisible hand of the market in equalizing of supply and demand

Each personality, Adam Smith, irrespective of will and consciousness considered, goes to achievement of an economic benefit for all society. Thus, the invisible hand of the market is directed to obtaining advantage for people. Each producer, for example, strives for own benefit, but the way to it lies through satisfaction of requirements of a number of people. In it all essence of the principle of an invisible hand of the market: set of different producers as if movable by invisible force, effectively, voluntarily, actively realizes the interests of all society.

Profit performs alarm function in the mechanism of an invisible hand of the market and provides competent and harmonious distribution of all resources, that is counterbalances supply and demand. So, if production is unprofitable, then the quantity of the involved resources will be reduced. Soon such production will disappear, on it the circle of competitors will press. The main principle of an invisible hand of the market is in that resources were spent for profitable productions.

Real society and invisible hand of the market: embodiment problem

And though Adam Smith formulated the principle of an invisible hand of the market correctly, it is difficult to apply it to real economic life. It is necessary to consider specific conditions. For example, in the second half of the nineteenth century in the Western European economy there were enormous changes. There were enterprises turning into monopolies. It obviously does not enter model of work of an invisible hand of the market by all definitions. As a result of development of technologies of the enterprise became dependent from each other. Their recessions and rises were simultaneous. Because of it there came crash of a market system, foreseen Karl Marx. When process of monopolization of the western markets began to calm down gradually, in many industries of the company were noncompetitive. And today monopolies in economy do not interfere with development of economy at all though such model does not approach under the description of the mechanism of an invisible hand absolutely.

How does "the second hand" work?

It turned out that the market has also "the second hand", and there is it much longer, than even "first". Status differences between people also can influence the economic relations. Observation not behind the prices is the cornerstone of work of this principle, and behind what goods, services and with what effect are on sale. Such "hand" managed society since ancient times, just economists did not think of it. It is the new manifesto of development of the market which means ensuring a grocery variety and high rate of its updating. By means of purchase of goods the people try to show the taste, situation in society, that is mark own status. Having understood such mechanisms, it is possible to create absolutely new effective control system of the market in the future.


Author: «MirrorInfo» Dream Team