The Theory of the Invisible Hand Essay Example | Topics and Well Written Essays - 4500 words

The Theory of the Invisible Hand - Essay Example The above theory is further explained as a condition by which an individual in a society will toil enough to put his capital in the domestic industry so as to encourage its produce for getting a better value, and by doing this, the individual is trying to put in his labor, unknowingly or indirectly, towards bringing in a larger revenue to the society as a whole. In this sort of constructive endeavors the individual actually does not intend to promote the public interest at all, and also does not know to what extent he is promoting it. This unintended promotion bestowed on the society will naturally be more than the actual worth if the individual has really intended it. The theory of the Invisible Hand affirms that if a consumer is given the chance to select freely, that is, at his own will without any external coercion or persuasion, from the several options or products before him, then each producer responsible for the options or products will get the total freedom to choose what to sell or what to produce and how to produce it. This will allow the intended market to settle upon a very convenient product distribution and pricing system so that it will benefit all the members of the society. The reason for deriving such an outcome is vested in the truth that the greed and self interest of an individual will force the attributes to transform into a state of collective and gainful qualities benefiting the society. In economics related to industrial organizations, this theory is applied in the viable and effective production methods in order to maximize the profits. Pricing of products will be fixed to the minimum to compete with the rivals. For getting the required profits the investors will put more money in industries which are considered to be the neediest to people or the target group instead of investing in less profitable industries. According to Adam Smith, "It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." (Smith, Adam. Wealth of Nations, http://www.econlib.org/LIBRARY/ Smith/smWN1.html#B.I%2C%20Ch. 2%2C%20Of%20the%20Principle%20which%20gives%20Occasion%20to%20the%20Division%20of%20Labour%2C%20benevolence. Retrieved on 25th April, 2009) Thus, the Invisible Hand theory acts as a balancing mechanism in its entirety in the field of customer oriented production and its strategic marketing and in the matter of building customer relationships so as to increase the gains of the entrepreneurs. In this respect it cannot be construed that these entrepreneur's actions are fully motivated to benefit the interests of the society, but it is focused on himself and his kith and kin, and in reality, the net result of its application is nothing but the exploitation of the common people who are in dire wants of necessities and amenities in their struggle to survive in this world. Explanations of "Invisible Hand" in Society by different authors: Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. 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 h