Question

Explain what Adam smith meant by “the invisible hand of the marketplace”

Answer 1

What Adam Smith meant by "the invisible hand of the marketplace" is that there is no need for the government to interfere in the marketplace.

The invisible hand of the market place

Considered the father of modern economics, Adam Smith is the one who came up with the term "the invisible hand of the marketplace." What he means is that there is no need for the government to interfere in the marketplace. The economy of a nation has its own way - an invisible hand - to adjust itself. Regulation happens automatically as a balance between supply and demand is always sought by those who purchase and those who produce.

Therefore, we can conclude that the expression "the invisible hand of the marketplace" is simply a metaphor for this capacity of self-adjustment that the marketplace has. However, it is important to keep in mind that there are exceptions to this, and sometimes governments do need to interfere in the economy.

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