The Invisible Hand

adam smithAdam Smith, the famed Scottish economist has presented the world with some intriguing theories. Perhaps his most well known theory is the invisible hand. The invisible hand is a metaphor for the self-regulating behavior of the marketplace. The primary idea is that people can make a profit and maximize it without government intervention. For example, imagine a society with a free market economy. In this society there is a man who is the owner of a clothing store. This man decides that if he lowers the cost of his wear he will have an advantage over his competitors. As our storeowner lowers his prices, other clothing businessmen catch on to his idea and start to lower their prices to attract attention to their stores instead of his. While these entrepreneurs’ war with each other’s businesses by way of low prices, quality of material, and advertising: the consumer is left with low priced but quality clothing.

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