At the end of 1775 and beginning of 1776 in England, the first edition of the famous two-volume edition of the Scottish economist Adam Smith, dedicated to the study of the causes and nature of the Wealth of Nations.This monumental work was the first time describes the basic mechanisms and principles of international trade.The author of the work in their discussions on the subject according to the annual income of the nation of the amount received for the result of the work each person has formulated a very important principle, which bears the name of the currently "invisible hand of the market."Its essence is that people direct all their efforts and energy in the industry is a national industry that can give them the most revenue.Due to this rise underdeveloped industry, and where at the moment formed oversupply, there is an outflow of capital in more profitable and promising areas.Thus, every citizen of the country, thinking that meets only its own needs, in fact, serve the interests of the whole nation.Since that time, the expression "the invisible hand of the market" is firmly established in the economic literature and is often found today.In other words, the economic forces that we know as supply and demand, are constantly trying to achieve a balance.
How does the "invisible hand" of Smith
laws of the market of buyers and sellers are forced to act, taking into account mutual interests.Thus, the entrepreneur will never be let out products that are suited only to him, and that consumers are not interested.And sky-high price, he will not be able to establish - in this case it is easy to bypass competitors.It turns out that to win and get the maximum profit only those who manage to meet the needs of the population and the best quality product at the lowest possible cost.Employers do not care about the welfare of society, but their selfish benefit to all citizens.Therefore, Smith believed that government intervention in the economy is harmful, "the invisible hand of the market" itself is the best way to cope with all the current problems and challenges.It should allow each person to freely pursue their economic benefits, and it would be best to contribute to the growth of national wealth in the country.According to the theory put forward by Adam Smith's "invisible hand" includes the six basic elements:
- market prices generated by balancing supply and demand.
- Swing norms and the mass of profit, ie,the possibility of low-profit capital away and poured into high-yield business areas.
- free competition, encouraging the market to produce only the necessary items.
- Demand, which is a powerful engine for the economy.
- Offer products that can meet all the existing demand.
- Lending Bank of commercial banks and loans last households and businesses.
invisible hand of the market and current conditions
Keep in mind that Adam Smith created his theory at a time when the world economy is still not known what the scale crisis, "Great Depression", large financial frauds,multinationals, integration processes, ecological disasters, and so on.. In addition, a full market economy is not able to think strategically, to solve social problems, protect the environment, to provide human services are not profitable (construction of infrastructure, maintaining the country's defense and so on.n.) to smooth the wave nature of economic development.That is why in our day state intervention is necessary.The only question is to what extent and with what tools it will be.
