The Invisible Hand Symbol Analysis

Smith’s “invisible hand” metaphor represents how people’s economic self-interest often aligns with the interests of their national economies as a whole—but also, from a contemporary perspective, how modern economists have frequently distorted Smith’s ideas. Smith only mentions the “invisible hand” once in passing, as a metaphor for how merchants tend to invest domestically instead of abroad because it is more secure, and this is best for the national economy as a whole. “In this, as in many other cases,” he writes, the merchant is “led by an invisible hand to promote an end which was no part of his intention.” He concludes that because of this, governments don’t need to force merchants to invest domestically.

Smith neither invented, defined, nor elaborated on the “invisible hand” metaphor, which he also used in very different contexts in his other works. Yet in the mid-20th century, economists began citing Smith’s “invisible hand” to defend the principle that governments should intervene as little as possible in the economy because the market always promotes the collective economic (or even social) good. Smith did think that free, competitive markets tend to self-correct over time, producing as much of different goods as people need at the prices they are willing to pay. But he certainly didn’t think that a free market means an unregulated one, or that investors usually do what is best for society by pursuing their own self-interest. (Actually, he argues that investors’ interests are usually contrary to society’s because they prefer to establish monopolies and raise prices to increase their profits, instead of providing the highest-quality goods and services at the lowest possible price.)

In fact, the basic dynamics of Smith’s original example have also changed. In his era, domestic investment was the most secure because investing abroad usually meant sending gold bullion across the world on ships that could take years to return and yield a profit (if they didn’t sink or get raided by pirates). In today’s age of government-issued currency, digital banking, financial speculation, and rapid international travel, most of these barriers have simply disappeared—and thus many economists think the invisible hand no longer even does what Smith originally purported it to.