Hayek argued that markets process more information than could possibly be mastered by a mastermind or even a mastermind working with a computer. Hayek’s seminal article, he illuminates the real role of markets?the coordination of knowledge and information without anyone being in charge. Hayek, Friedrich A., “The Use of Knowledge in Society,” American Economic Review, 1945 But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies?millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding!… I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But what mind is there among men that could even record, let alone direct, the constant changes in molecules that transpire in the life span of a tree? Such a feat is utterly unthinkable!

We can say, for instance, that a certain molecular configuration manifests itself as a tree. It has been said that “only God can make a tree.” Why do we agree with this? Isn’t it because we realize that we ourselves could not make one? Indeed, can we even describe a tree? We cannot, except in superficial terms. This is the mystery to which I earlier referred. Instead, we find the Invisible Hand at work.

There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. Irvington-on-Hudson, NY: Foundation for Economic Education, Inc., 1999. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. The rich only select from the heap what is most precious and agreeable. The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. įrom The Theory of Moral Sentiments by Adam Smith. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it. I have never known much good done by those who affected to trade for the public good. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. Nor is it always the worse for the society that it was no part of 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 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. 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. First published 1776.īut the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As told by the pencil itself.įrom An Inquiry into the Nature and Causes of the Wealth of Nations, Book IV, Chap. Charming illustration of the workings of the invisible hand to guide the market and coordinate the division of labor in producing even the simplest of objects-a pencil.

Invisible hand economics