Invisible Hand

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Definition of 'Invisible Hand'

The invisible hand is a metaphor for the self-regulating nature of the free market economy. The term was coined by Adam Smith in his book The Wealth of Nations (1776). Smith argued that individuals acting in their own self-interest will unintentionally produce the best outcomes for society as a whole. This is because, in a free market, prices are determined by the interaction of supply and demand. When the price of a good or service is high, producers will increase supply, and when the price is low, producers will decrease supply. This ensures that the market is always in equilibrium, and that consumers are able to get the goods and services they need at the best possible prices.

The invisible hand is often used to justify the free market economy. Critics of the free market argue that it can lead to inequality and exploitation. They argue that the invisible hand does not always work in the best interests of society, and that government intervention is sometimes necessary to correct market failures.

The invisible hand is a complex concept with a long history of debate. It is a central idea in economics, and it continues to be debated by economists and policymakers today.

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