Adam Smith, also known as the “father of modern
economics”, released two major works that sparked an economic movement. First, The Theory of Moral Sentiments discussed human ethics and how human
communication relies on internal forces; sympathy, conscience, and empathy. Moreover, the book is a reality for people to
understand that we do things out of self-interest but naturally end up helping
others in the grand scheme. Second, The
Wealth of Nations points out three main ideas; division of labor, productivity and the free
market. The Invisible Hand is a central theme in both of these works, and this theme bleeds
into American society through Smith’s influence. Although there have been many changes
between Adam Smith’s time and the present time, Smith’s perspective and concepts from both The Theory of Moral Sentiments and The Wealth of Nations remains relevant
to today’s economy. In my research paper, I
will be discussing the relevance of the invisible hand as it relates to
Smithsonian era society and economy in comparison to today’s society,
government, and free-market economy. Additionally, I will be discussing the
moral and ethical implications of the invisible hand.

invisible hand is a term Smith used to describe the unintentional benefits
society acquires through individual actions based on self-interest.

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That is to say, when an individual makes an effort to pursue their
own interest, they may also unconsciously profit society as well. This
idea is the basis for Adam Smith’s laissez-faire economic system.

Laissez-faire is a French term that translates to roughly to “Let them do/be”.

This system advocates for the least amount of government interference and
regulation in regards to the economy, a pillar of classic liberalist economics. While
first introduced in Smith’s Theory of
Moral Sentiments and then again
in his Wealth of Nations, the invisible hand can be argued as both
pertinent and controversial. Smith’s invisible hand reached a greater view
into the complexities of society and association than the economy. In
Smith’s larger viewpoint, the invisible hand is an implicit symbol for opening
the world in learning how to co-operate, exchange its members’
services and sentiments through the waves and changes of the world. Essentially,
Smith feels that the economy will respond to a changing society in a way that
benefits society and keeps progress moving. However,
while some may not agree with this view point, others live by it. To
better understand the impact the invisible hand has, we must revisit Smith’s
metaphor, as it provides a valuable message, that the foundation of a
nation’s success in creating a productive liberal society lies in the peoples’ adherence
to a common social ethic.

Smith’s principle of the invisible hand is a
central theme in classic liberal economics. Classical liberalism is concerned with
individual rights and freedoms, and Smith’s theory fits perfectly in the
center. The idea that it is up to the individual to pursue their own
self-interests is vital to personal freedom, and consequently any regulations placed upon
the economy would violate the freedoms. The idea of these personal freedoms comes
from John Locke’s ideas of natural rights, which he feels every person is endowed with
upon birth. These rights are echoed in the preamble of the Constitution, as Locke dictates that
every person is entitled to life, liberty and the pursuit of happiness. Considering these
notions, Adam Smith’s views on economic regulation are more understandable. Property rights are also
a very important issue in classical liberalism, and because of this the sellers in the
market hold a lot of rights within the economic sphere of classical liberalism.


Grampp (2000) argues that while many people deem the invisible hand one of the
main principles of The Wealth of Nations, it
is merely a term that holds more in the way of interest than importance.

That is, the invisible hand does not have any significance in relation to
the message of The Wealth of Nations. Grampp
(2000) adds that in the many years since the Smithsonian Era,
people have misused the term in a way that implies the invisible hand is used
as a price mechanism in the markets. This claim, Grampp (2000) disputes, is

In The Wealth of Nations, Smith explains in his writing that the
invisible hand is a condition which may or may not be a factor in the operation
of a competitive market. This condition refers to an individual who intends
to benefit only himself while unconsciously benefiting everyone else. Additionally,
Smith did not in fact state that a person who acts in self-interest is led by
actions of the invisible hand. However, many economists argue
otherwise. Another argument Grampp (2000) makes is that many believe that
the invisible hand has the power to give support to price mechanism, an
influence that brings all markets to join together into a state of steadiness
and evenness, and in turn guides the economy in a way that amplifies the
wealth of a nation. While Grampp (2000) explains that a buyer and seller
do come together to exchange on regulations that satisfy one another, it
is not evidence that self-interest behavior occurs as a result of price
mechanism. However, Smith does make clear the idea that voluntary exchange
between a buyer and a seller which brings satisfaction between both parties
does suggest markets can guide themselves, and in turn do not have to
be controlled by the government. Moreover, this does not have any
implications to the invisible hand. Instead, this speaks to a thriving
market that works apart from government rules and regulations (Grampp;

While Grampp
(2000) views the invisible hand merely as an economic term, Jerry
Evensky (1993) argues a different perspective on the invisible hand. Evensky
discusses how the invisible hand relates to the ethics and morality of society. He
argues that the invisible hand has a bigger influence than the sphere of
economic markets. The invisible hand provides a lesson in which the
foundation of the invisible hand and its success lies in creating a positive
classical liberal culture in which individuals work for the common good of
society. In this, Evensky (1993) reasons on the philosophical and ethical
basis of the invisible hand. He believes that society is developed and
motivated by Smith’s idea that while man
initially works for the interest of themselves, in the end,
all of society will be benefited (Evensky; 1993), He adds,
that in order to prevent a destructive society, there needs to be a
balance in which the values of an individual must coexist with the needs and
interest of society. In this sense, Evensky is rebuking
Smith’s principle by stating that the invisible hand may not be enough to
ensure societal progress. Rather, the interests of the nation must be
considered in addition to personal ventures. Evensky (1993) ends his
argument with the notion that Adam Smith looked for the invisible hand to
create moral leadership in all of society.

Nakamura (2000) presents
a different view on the invisible hand as it relates to modern day economics, also
referred to as “new economics”. First, Nakamura (2000) explains
that many firms in the market-place are led by self-interest in a way that
maximizes a consumer’s well-being as long as competition is fierce. This
principle Nakamura (2000) sets forth can be seen to represent what we know as
the invisible hand. The invisible hand as explained in this article
implies that government interference towards the market is both uncanny and
unnecessary unless the economy begins to operate inefficiently.

However, in regards to Smith’s theory, Nakamura (2000) also
implies that governments may help the invisible hand’s case of being relevant to
the “new economy” by abolishing false and illegal barriers of trade in the

With this in mind, some may argue that this article supports the
invisible hand when in fact Nakamura fights to explain that the invisible hand
is merely a figment of our imagination, something intangible and not attainable. Nakamura
(2000) seems to view the invisible hand as a force within the economy,
but does not recognize the presence of it as an overarching symbol that
dictates the function of the economy.

 One of Adam Smith’s most influential and
notable contributions was the invisible hand theory, and its ramifications are
still felt in political discourse today (Brazilai 2013). While there are
some who believe the invisible hand should not be taken seriously,
others believe it is the forefront of market success with minimal government

In reading the literature, it was very hard for me to decide how I felt about
the issue. However, when considering today’s societal context and how the
economy and culture function as a whole nation, the invisible hand should
be taken in the context of ethics and morality. This is because life as we
know has changed drastically from the Smithsonian era to now.

Machines are made to take the place of workers, computers have become more
and more reliable, and innovation is at the foundation of this new era
which means the invisible hand has no place the market realm. This
however, does not take away from the fact that the invisible hand has a
responsibility beyond the market room; morality and ethics still play a role. It
provides a lesson in which the foundation of the invisible hand can be used for
leadership and success for all of society.

Adam Smith
developed the principle of the invisible hand during the 18th
century, looking at emerging economies in the United States and France.

However, these economic climates have drastically shifted since his time.

Notably, the rise of the internet and technology has changed the
landscape of economics in ways Adam Smith could never have predicted.

Due to the nature of the change, Smith’s principles must be revisited and
reconsidered in order to assimilate them into a modern context.

The Industrial Revolution of the nineteen century is perhaps the most
influential event on economics since Adam Smith’s time. The Industrial
Revolution gave rise to monopolies such as Carnegie steel,
and these monopolies greatly detracted from the integrity of society. In
order to protect the consumer market, the government stepped in and placed
regulations that promoted competition and limited the power of large
corporations to hold a monopoly. This is a perfect example of balancing the
needs of society with the freedom of the economy. These large corporations
were acting out of self-interest at a detriment to society,
which opposes the idea of the invisible hand. Yet this is not to say
that Adam Smith’s principle is inherently wrong. He proposed the theory in
a pre-industrial society comprised largely of small, local vendors. In
a setting such as this, the idea of the invisible hand becomes more feasible.

I feel that the
invisible hand should be considered in the context of morality as it applies to
today’s issues. America is a diverse, highly populated nation
with competing interests and ideas flooding our conversations.

Additionally, the ever-increasing complexity of the markets makes American
economics a very morally ambiguous medium. While the sellers within
the market provide the supply, the consumer is still the one who creates the
demand and thus their interests must be considered. Because of this,
sellers have a certain moral obligation to create a product that their
consumers can be happy with. With so many competing interests,
regulations seem like they are necessary to some extent. These regulations
would be to protect buyers from unfair prices or faulty products. As
Nakamura (2000) tells us, the markets can be controlled by the invisible hand
if fierce competition is present. Yet fierce competition may not always be

As evidenced before, the Industrial Revolution changed the way we view
economics, and Adam Smith was not around to reformulate his ideas.

Therefore, it is up to modern economists to understand the invisible hand’s
place in economics in order to ensure the society can function freely and

There are many factors
and opinions regarding the implications of the invisible hand in today’s
economy. Some economists swear by it, and regard it as an
integral piece of the economy that propels society and the economy forward.

Others feel that the invisible hand is inherently detrimental to a fair society,
and as such should be regulated.  There
are valid points on both sides of the argument. On the one hand, we
can see the ideals of personal freedom being preserved as very important,
particularly as a nation that is built upon the values of personal liberty.

However, the pursuit of these self-interested goals cannot be detrimental
to society. This is where a discrepancy lies. There are numerous
opportunities to create wealth in America, and with so many competing
interests in one market, people are bound to be exploited or done wrong in
some fashion. There is historical precedent for this sort of behavior,
and as such regulations were put into place. I feel that regulations
should be put into place, but only to protect the interest of the market and
the consumer. If free market practices inhibit progress of the nation, then
the Smith’s principle is rendered useless. Therefore,
these regulations become necessary to balance the needs of the nation.