The invisible hand of the marketplace converts our self-interest into the public interest. In the passage above, Smith makes one of his most bracing, important, and often misunderstood claims. The “Invisible Hand” Describes the Communal Benefits of Personal Actions The invisible hand of market exchange-and voluntary action more generally-generates the ordered use of social knowledge according to the visions, plans, and expectations of the many members of that society, rather than according to the visions, plans, and expectations of state functionaries.
The invisible hand of the marketplace helps us make use of others’ knowledge and encourages us to help ourselves by helping others. He identified and explained something really marvelous. Which better guides the use of a society’s decentralized knowledge: the invisible hand of the market or the visible fist of the state? Adam Smith began An Inquiry into the Nature and Causes of the Wealth of Nations by explaining that people have become more productive because they have been able to specialize and divide labor. By preferring the support of domestic to that of foreign industry, he intends only his own security and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” -Adam Smith, Wealth of Nations He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. “As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value every individual necessarily labours to render the annual revenue of the society as great as he can.
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