The principle of the invisible hand

In the modern market of goods and services, you can find everything that the soul desires. The most interesting thing is that many companies manage to win the palm tree of the year each year, not yielding one iota to other firms. At the same time, consumers are not diminished. Immediately appears an idea, suggesting that there is clearly a specific strategy being developed here, or maybe the manufacturer adheres to the principle of the invisible hand.

The concept of an invisible hand

For the first time it was used by the famous Scottish economist Adam Smith in one of his works. With this concept he wanted to show that every person, pursuing personal goals , looking for ways to achieve his own profit, willy-nilly, but helps various producers of goods and services to achieve their economic benefits.

The mechanism of the invisible hand of the market

Thanks to the operation of this principle, market equilibrium and balance are observed. All this is achieved by influencing demand and, accordingly, supply through the price set by the market.

So, when the demand for some goods is changing, which results in the cessation of their output, production of those that are now in demand among consumers is being established. And in this case, the invisible hand of the economy is something of an invisible organ that regulates the distribution of all available market resources. It will not be superfluous to draw attention to the fact that this happens under the condition of even minor changes in the structure of social needs.

At the same time, the law of the invisible hand informs that the competition of prices in the market can positively affect the course of affairs of each of its participants. So, this mechanism acts as a kind of informant, informing that every manufacturer has the opportunity to effectively apply any limited resource that society has. To produce goods that are in demand, it is necessary to concentrate all knowledge, skills and abilities that are in a chaotic order in each society.

So, we can sum up that the essence of the principle of the invisible hand of the market is that each individual person, when buying any goods or services, seeks to find in himself the greatest benefit, benefit. At the same time, she does not even have any thoughts to contribute to the improvement of society, to make any contribution to its development. At that moment, serving his interests, a person pursues public interests, unconsciously striving to serve the society.