The Theory of the Invisible Hand was developed by the economist Adam Smith and is a metaphor for how the pursuit of self-interest can be beneficial to the whole of society. In other words, according to this theory, there is no disadvantage for each person to seek their individual interest, since the law of supply and demand they benefit the whole of society in an indirect way.
Basic foundations of the theory of the Invisible Hand
The first reference to the metaphor of the "Invisble Hand" is found in the work ofThe Wealth of Nationsde Adam Smith, published in 1776, although the expression "invisible hand" had already appeared in his first book, The Theory of Moral Sentiments (1759). The invisible hand is a metaphor with which Smith, father of modern economics, refers to the capacity for self-regulation that the free market has inherent in its foundations and theories.
In this way, he pointed out that the role of the market is fundamental and that the less control there is in economies, the easier it will be for them to achieve their maximum welfare. According to Smith's ideas, the actions of supply and demand are sufficient to achieve the economic balance and the natural setting of prices, and the presidents should deal with other matters more focused on justice or defense, leaving the market to its free operation.
In short, the theory of the Invisible Hand defends that the market's own self-regulation facilitates the achievement of an optimal market, so that individuals must behave and act without the interference of the state and seek their own interest. In Adam Smith's opinion, prices are a more than sufficient indication to know at what precise moment one should participate or not in the market.