Question

According to Adam smith how does self interest benefit society

Answer 1

Adam Smith stated that when individuals pursue their self-interest they are motivated to act in an efficient manner and this leads to an outcome that is also positive for the society as a whole.

For example, a baker does not make bread motivated by the desire of feeding hungry people, but due to the need of earning money for a living. Although the inner motivation is totally selfish, he is simultaneously contributing with the community and break is now available in the market. The more efficiently the baker is when producing his bread, the lower the production costs and the higher his earnings would be. Again, this is a selfish motive, but lower costs also lead to lower market price of bread and consumers are benefited from this as the pay less.

Answer 2

The concept of the "invisible hand" was explained by Adam Smith in his 1776 classic foundational work, "An Inquiry into the Nature and Causes of the Wealth of Nations." It referred to the indirect or unintended benefits for society that result from the operations of a free market economy. Smith, considered having founded modern economic theory in the late 18th century, was no fan of widespread government regulation of the economy. He even went so far as to defend smuggling as a natural, legitimate part of the economy. His "laissez-faire," or free market, theories are primarily embraced by the modern-day Milton Friedman school of economic thought, which stands in contrast to the 19th century Keynesian economic theories that became increasingly predominant in shaping the economic policies of western governments since the 1930s and the Great Depression.

Smith's theory of the invisible hand constitutes the basis of his belief that large-scale government intervention and regulation of the economy is neither necessary nor beneficial. Smith put forth the notion of the invisible hand in arguing that free individuals operating in a free economy, making decisions, primarily focused on their own self-interest, logically take actions that result in benefiting society as a whole even though such beneficial results were not the specific focus or intent of those actions.