How the principle of the invisible hand of the market works

The principle of the invisible hand of the market is a term introduced by the Scottish economist and one of the founders of modern economic theory, Adam Smith, to explain the mysterious processes in the market. He realized that the behavior of buyers and sellers in the market is determined not only by their desires, but also by some third party that is not visible.

For the reason that this side is not visible and is clearly related to the market, it was called the “invisible hand of the market”. This third party coordinates the decisions and desires of buyers and sellers, and does so unnoticed by them. In the course of the transaction, they receive information not only from each other, but also from this very invisible hand of the market. Continue reading →