What Is the Invisible Hand?

The "invisible hand" is a metaphor used by Adam Smith to describe the principle that an unintentional consequence of personal behavior, a social order that produces good results, emerges. Although Smith has used the word "invisible hand" from this meaning only three times in his writings-once in The Moral Sentiment and once when he talked about early religious thought, he wrote humorously Jupiter in Greek mythology "this invisible hand". Once in The Wealth of Nations, but the idea expressed by this metaphor penetrates into all his social and moral theories.

Invisible hand

(Economic term)

Right!

"Invisible Hand" is a metaphor, Adam

Since 230 years, countless people have been eager to dig out useful things from books, and finally found a sentence "invisible hand", which is in "

On Moral Sentiment

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18th Century British Economist

Under normal circumstances, the market will maintain its healthy operation with its internal mechanisms. The main basis is the rational principle of the economic person in market economic activities and the rational choice governed by the rational principle of the economic person. These choices gradually formed the price mechanism, supply and demand mechanism, and competition mechanism in a market economy. These mechanisms are like an invisible hand, dominating everyone in the meditation, and consciously operating in accordance with the laws of the market.

The market mechanism operates in accordance with the rational principles of the economic man. In the market economy system, consumers make purchase decisions based on the principle of maximizing utility, and producers make sales decisions based on the principle of maximizing profit. The market is between supply and demand, and in accordance with the natural changes in prices, guides resources to the most efficient allocation. At this time, the market is like an "invisible hand", which promotes producers and consumers to make their own decisions under the interaction of price mechanism, supply and demand mechanism and competition mechanism.

At the same time, the "invisible hand" will also bring a certain crisis to the market economy, so at the same time, the "visible hand" is also required to carry out macro-control of the market.

The Commercial Press's " English-Chinese Dictionary of Securities Investment" explains: invisible hand English: invisible hand. The theory proposed by classical economist Adam Smith in "The Wealth of Nations" states that the development of the national economy should not be interfered by the government, but should be selected by the needs of the entire society. This social need is considered the "invisible hand" that regulates the market.

Manipulators of monopoly capital:

Why is the economy growing? Why has the economy become a global economy in growth? Should China use the "invisible hand" or "visible hand" to choose its own development path?

1. What is the "invisible hand"?

Let's start with a small example. Assume that there are only two farmers A and B in a certain village. Originally, they planted food for eating and weaving for clothing. Their respective wells did not violate river water, and they did not communicate with each other. But then A and B discussed together. It was A's strength to grow grain, but weaving was the strong point of B. As a result, the two farmers had a division of labor: A specialized grain production and B specialized weaving. As a result, more food and cloth were available under the same resource conditions in one year. Smith tells us: If we want to increase output, we must increase labor productivity, and if we want to increase labor productivity, we must divide labor. The division of labor is to break down complicated things and make them simple, and doing simple things is bound to be efficient. According to Smith's theory, the division of labor is based on the absolute advantage, that is, compared with the other party, the specialized production efficiency is definitely stronger than the other party, and then both parties benefit from the exchange.

The basis of the division of labor is absolute advantage. The so-called absolute advantage is that oneself is better than the other, and has better ability and efficiency than the other. So how to compare the absolute advantages of A and B? Smith told us that if we go to the market to look at the price of grain and cloth, then calculate the ratio of the production cost of grain and cloth in each home and the price of grain in the market, and then compare the size of the two sets of data, we can Find the absolute advantage. If the ratio of A's production cost of grain and cloth is less than the market price ratio, then A's advantage is grain, otherwise it is cloth. B can also perform the same calculations and comparisons.

This aspect tells us that the market price is an indicator of the absolute advantage of the producer, and as the price changes, the producer's advantage also changes, sometimes increasing, sometimes weakening, and sometimes changing from advantage to disadvantage. Producers will change their production structure and the flow and changes of production factors according to market prices. In other words, the factors of production will change with the changes in market prices. This is the reconfiguration of factors. How the production factors flow is completely constrained by an invisible and intangible force, which is the market price mechanism. Smith called this mechanism the "invisible hand".

However, there is a problem in the division of labor according to absolute advantages: if in reality A is not as good as B in planting grains and weaving, or is stronger than B, how should the division of labor be done? Ricardo tells us such a solution: With comparative advantages, A and B can still participate in the division of labor, which will also bring more benefits. That is, when comparing advantages, instead of comparing with each other, you should compare yourself with yourself, and specialize in producing products that have a comparative advantage over yourself. This is the "comparative advantage theory". In this way, as long as you have a product with a higher relative productivity than yourself, you can participate in the market division of labor, specialize in the production of a product with a higher productivity than yourself, abandon the product with a lower productivity than yourself, and then exchange with others. Benefit.

The principle of division of labor used to guide individuals can also be used to guide division of labor between countries. The principle is the same. To carry out the division of labor, we must continuously expand the market size and market scope, that is, constantly expand the market territory. On this basis, the division of labor and market size and scope are in a mutually promoting and dependent relationship. As soon as commodity production and exchange occur in the world, all nations will be brought under its control. The "invisible hand" thus reached the world.

The reason why the market economy can spread globally is that apart from world political and military factors, the evolution of division of labor and the increase in wealth are the real driving forces. Marx said that in the two hundred years of its birth, capitalism created far more wealth than the sum of wealth created by human history.

2. The "invisible hand" has become a dirty hand

The "invisible hand" increases human wealth and, from this point of view, it is a hand that promotes historical progress. But can it be fair in distribution and thus become a right hand? Or is it the opposite, causing one party to wantonly violate the interests of the other party and become a dirty hand? In this regard, even if we do not analyze it from the perspective of production relations, but only understand it from the perspective of Western economics, we will draw the conclusion that in the real economy, the "invisible hand" is a flaw. The hand, when its flaws are effectively used, is likely to become a dirty hand.

Let's look at the examples of A and B. In the market economy, in fact, A or B does not care much about how much food and cloth are produced, but cares about how the cloth and food produced by them are exchanged to bring more benefits for themselves. Economist Jagdish. Bagwati once studied the phenomenon of "poverty growth". He concluded that although the division of labor increased production, after the increased product entered the market, supply exceeded demand, causing prices to fall, and the amount of wealth returned changed. Less than before the division of labor, most of the benefits were taken away by others. The theory of "poverty growth" tells us that the "invisible hand" is indeed flawed. Under certain conditions, it is entirely possible to become a dirty hand, especially if these conditions can be artificially manufactured. The "invisible hand" has become a hand that grabs the wealth of others. When the world transitions from the physical economy to the virtual economy, especially when the economy dominates, these self-interesting conditions are often easier to create.

After studying the case of the two major aircraft manufacturing giants, Boeing and European Airbus, competing for the international civil aviation market, American economists have concluded that as long as the government provides a large number of subsidies to domestic aircraft companies, then the aircraft companies will dump at low prices. By pushing the other party out of the market and then raising the price, not only can the government subsidy be recovered, but it can also earn higher monopoly profits. The "invisible hand" really became a black hand that grabbed the wealth of others.

The current integration and marketization of the global economy is not only reflected in the physical product market, but also in the financial sector. With the opening of financial collar cities in various countries, financial liberalization and the derivation of financial products have gradually deepened. Currency markets, bond markets, foreign exchange markets, stock markets, futures markets and other countries have formed a global, 24/7 huge trading network. Under this network, the transaction value of global financial products is far ahead of the transaction value of physical products. Compared with physical products, the number of financial products is very small, the amount of funds that can be gathered is huge, and the transaction of financial products is extremely fast and the cost is extremely low. So "invisible hands" in financial markets are more likely to become dirty hands. As a result of the impact of Soros on the pound in 1992, he himself made more than $ 1 billion in gains. When he hit the Southeast Asian financial markets, the local economy returned to pre-flight overnight.

The "invisible hand" cannot make the world a harmonious community of interests, but leaves endless conflicts and frictions of interests. A world, a country, a region, a family, and an individual. If you do nt advocate hard work and get rich, but look forward to getting rich overnight, if you do nt promote hard work and thrift, but instead have a reputation for luxury, then conflicts of interest among countries will be caused by The decline has also escalated into a world economic war, but no center of world government can coordinate this conflict of interest. Countries are seeking the commanding heights of global economic interests for the sake of their own interests and their economic security. Of course, it is not ruled out that some countries plan to implement global strategies in consideration of controlling the global economy.

(Excerpted from Yang Jiaxu's "Invisible Hand Has Been Dirty Hand")