Adam Smith: Difference between revisions
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Adam Smith advocated the idea of spontaneous order by arguing that individuals are guided by an “invisible hand” mechanism in their pursuits for achieving self-interested outcomes. | Adam Smith advocated the idea of spontaneous order by arguing that individuals are guided by an “invisible hand” mechanism in their pursuits for achieving self-interested outcomes. | ||
In [[http://www.bibliomania.com/2/1/65/112/frameset.html The Wealth of Nations]] Smith argues that a social order can be maintained by letting the natural forces operate freely. The invisible hand mechanism argues that members of a society do not coordinate their actions towards achieving a pre-specified outcome. Their actions do not intend to promote public interest and their behavior is not guided by an explicit agreement. As people are self-interested, they will act in such a way so that they can achieve the greatest gains for themselves. However, the results of their spontaneously coordinated actions will translate into the achievement of an aggregate outcome, which seems to be the product of an omniscient mind. He argues that the outcomes resulted by people pursuing their own interests are actually more effective then when people are actually trying to promote the interests of the society (Book IV, Chapter 2, of The Wealth of Nations). | In [[http://www.bibliomania.com/2/1/65/112/frameset.html The Wealth of Nations]] Smith argues that a social order can be maintained by letting the natural forces operate freely. The invisible hand mechanism argues that members of a society do not coordinate their actions towards achieving a pre-specified outcome. Their actions do not intend to promote public interest and their behavior is not guided by an explicit agreement. As people are self-interested, they will act in such a way so that they can achieve the greatest gains for themselves. However, the results of their spontaneously coordinated actions will translate into the achievement of an aggregate outcome, which seems to be the product of an omniscient mind. He argues that the outcomes resulted by people pursuing their own interests are actually more effective then when people are actually trying to promote the interests of the society (Book IV, Chapter 2, of The Wealth of Nations). | ||
Smith argues that centralized legislators cannot possess the knowledge those "on the spot" have, and which is maximized in their pursuits to better themselves. He also argues that interventions in the market are inefficient as regulation of commerce cannot increase output in an industry beyond what its capital can maintain, but only divert it into a direction it otherwise might not have taken (The Theory of Moral Sentiments p. 233). | Smith argues that centralized legislators cannot possess the knowledge those "on the spot" have, and which is maximized in their pursuits to better themselves. He also argues that interventions in the market are inefficient as regulation of commerce cannot increase output in an industry beyond what its capital can maintain, but only divert it into a direction it otherwise might not have taken (The Theory of Moral Sentiments p. 233). | ||
Smith argues that it is the price mechanism which regulates the market. He considers that consumers keep prices for products within a close range from the costs of production. Market prices reveal the demand consumers have for a certain product. The greater demand for a certain product, the greater the production in the industry making that product. Thus, consumers induce producers to provide them with the products they want and direct investments to the most profitable industries, which raises the well being of the entire players in the market ([[20]]). | Smith argues that it is the price mechanism which regulates the market. He considers that consumers keep prices for products within a close range from the costs of production. Market prices reveal the demand consumers have for a certain product. The greater demand for a certain product, the greater the production in the industry making that product. Thus, consumers induce producers to provide them with the products they want and direct investments to the most profitable industries, which raises the well being of the entire players in the market ([[20]]). | ||
Revision as of 04:42, 28 April 2006
Adam Smith advocated the idea of spontaneous order by arguing that individuals are guided by an “invisible hand” mechanism in their pursuits for achieving self-interested outcomes.
In [The Wealth of Nations] Smith argues that a social order can be maintained by letting the natural forces operate freely. The invisible hand mechanism argues that members of a society do not coordinate their actions towards achieving a pre-specified outcome. Their actions do not intend to promote public interest and their behavior is not guided by an explicit agreement. As people are self-interested, they will act in such a way so that they can achieve the greatest gains for themselves. However, the results of their spontaneously coordinated actions will translate into the achievement of an aggregate outcome, which seems to be the product of an omniscient mind. He argues that the outcomes resulted by people pursuing their own interests are actually more effective then when people are actually trying to promote the interests of the society (Book IV, Chapter 2, of The Wealth of Nations).
Smith argues that centralized legislators cannot possess the knowledge those "on the spot" have, and which is maximized in their pursuits to better themselves. He also argues that interventions in the market are inefficient as regulation of commerce cannot increase output in an industry beyond what its capital can maintain, but only divert it into a direction it otherwise might not have taken (The Theory of Moral Sentiments p. 233).
Smith argues that it is the price mechanism which regulates the market. He considers that consumers keep prices for products within a close range from the costs of production. Market prices reveal the demand consumers have for a certain product. The greater demand for a certain product, the greater the production in the industry making that product. Thus, consumers induce producers to provide them with the products they want and direct investments to the most profitable industries, which raises the well being of the entire players in the market (20).
