Question

According to Adam Smith, how does productivity, the division of labor, and the invisible hand impact the economy?

Answer 1

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 to have 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 supply-side Milton Friedman school of economic thought. Those theories stand in contrast to the 19th century demand-side Keynesian economic theories that became increasingly predominant in shaping the economic policies of western governments since the 1930s and the Great Depression.