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INVISIBLE HAND OF THE MARKET

Sociologyindex, Sociology Books 2012

'Invisible hand of the market' is a phrase associated with the great classical economist Adam Smith (1723-1790) referring to the self-regulating capacity of free markets.

Free markets, through the mechanism of supply and demand, are assumed to provide the optimal allocation of scarce economic resources to alternate uses without the need for any conscious direction or control.

The term 'Invisible Hand of The Market is used by economists to describe how factors and forces like supply, demand and profit margin work together to create opportunity and provide balance in free markets. 

"There is no doubt that the invisible hand of the market can outperform the heavy hand of regulation." - Remarks of Governor Christine Todd Whitman, EPA Conference on Market Mechanisms and Incentives, Washington, D.C. 

During the first revolution in manufacturing, in the words of Alfred Chandler, the "invisible" hand of the market was replaced by the "visible" hand of corporate managers. If this vision of Napsterization of the supply chain comes to pass, we now may see the "visible" hand of managers replaced by the "virtual" hand of networks.

The Mystery of Adam Smith’s Invisible Hand Resolved - Mark Thornton, Senior Fellow, Ludwig von Mises Institute
Abstract: Several new interpretations of Adam Smith’s invisible hand have recently been published in leading general-interest economic journals. These interpretations attempt to bring Smith forward in time, to make him more modern, and to fashion him in the image of the modern general equilibrium welfare theorist. Here we go back in time and find the source for both of Smith’s economic applications of the invisible hand in Richard Cantillon’s model of the isolated estate. With this connection established, we know what Smith read and dubbed the invisible hand.

Was Adam Smith Wrong About the Invisible Hand? - economistsview.typepad.com
Another "economics is a speculative philosophical discourse, not a deductive or inductive science" argument: 
The really unfortunate thing about the famous "invisible hand" is that so many seem to understand it to mean no hand at all, which was certainly not Smith's understanding. - Bruce Wilder
John K. Galbraith, Paul Samuelson and Solow shone in splendid isolation against the "market bias" of Chicago University economists, like Milton Friedman (1976 Nobel laureate), who not only worshipped the "invisible hand" of the market but could mould the public policies of the West. 

Efficient Resource Utilization
An essential issue which is related to the market economy and which can also be traced back to Adam Smith concerns the normative properties of the market allocation of resources. Will the fulfillment of self-interest through the "invisible hand" of the market mechanism lead to efficient utilization of scarce resources in society? Will the resources be used and production adapted so as to result in a situation where any attempt to make one individual better off necessarily means taking away from other individuals, i.e., a situation without any waste whatsoever? It has long been known that in certain circumstances, market price formation has such efficiency properties, but the exact nature and full extent of the conditions which must be satisfied in order to guarantee them had not been determined. Through the work of Debreu and his successors, these conditions have been clarified and analysed in detail. - nobelprize.org/ nobel_prizes/economics/laureates/1983/press.html

The invisible hand preventing an energy crisis - Chietigj Bajpaee 
"The invisible hand: However, in addressing mounting oil demand we have the invisible hand of the market to step in and adjust consumer preferences as prices rise and supply falls. For example, after the oil shocks of the 1970s, industrialized countries reduced their reliance on oil relative to other energy sources, such as natural gas, nuclear power and renewables, and improved on energy conservation and efficiency through the use of new technologies and practices such as better insulation in the homes (micro-conservation) and shifting away from heavy industries that rely on high levels of energy consumption (macro-conservation)." - atimes.com/atimes/Global_Economy/GD14Dj01.html

"Faith in the ability of unregulated markets to provide the best possible environment for human development has gone too far. Too great a reliance on the 'invisible hand' of the market is pushing the world toward unsustainable levels of inequality and deprivation. A new balance between public and private interests must be found." "Efficient markets require the contributions of a well-run public sector. They require a healthy, well-educated and well-informed population. And they require the social stability that grows out of democratic governance and an acceptable level of public provision." - A UN publication "Visible Hands: Taking Responsibility for Social Development".

Letizia Paoli, 2003. ‘The Invisible Hand of the Market: The Illegal Drugs Trade in Germany, Italy, and Russia’, in Petrus C. van Duyne, Klaus van Lampe and James L. Newell, eds., Criminal Finances and Organising Crime in Europe: 19-40. Nijmegen: Wolf. 

Research Coordination or "Invisible Hand"? - W. Miklius, J. O. Gerald
Journal of Farm Economics, Vol. 49, No. 3 (Aug., 1967), pp. 756-759 doi:10.2307/1236916
"An effective price and market system is absent, and therefore the invisible hand of the market plays a minor role in guiding research activities."

Inside Information on 'The Market' - Jonathan Benthall
Anthropology Today, Vol. 7, No. 4 (Aug., 1991)
"We all know that Adam Smith coined the phrase 'the invisible hand of the market', which Galbraith has called the most famous metaphor in economics. ..."
"Smith introduced the image of the "invisible hand" - now one of the most influential metaphors of economic thought. The idea is that when each individual pursues his or her own advantage, he or she is "led by an invisible hand to promote an end which was no part of his intention," thereby doing more for society than if he or she had deliberately set out to do so." - flora.org/sustain/invisble.html

The invisible hand of the market has writ: the only sustainable competitive advantage for companies is the people who work there. The unprecedented economic growth of recent times is due in part to the explosive growth of knowledge and the transformation of work from muscle power to brain power. With this vast and growing knowledge base, we are just beginning to comprehend the working relationships and organizational fabric that will define the successful business enterprise going forward. - The Invisible Hand: Creating the Workplace of the Future, Lawrence Perlman, Chairman and Chief Executive Officer of Ceridian Corporation - cebcglobal.org/ Publications/ExecutiveSummary/EXS_0898.htm

Market Magic is a web-based market simulation designed to introduce students to key concepts in managerial economics. The laws of supply and demand are demonstrated when students act as buyers and sellers in a theoretical market with parameters defined by the faculty member. 
In their assigned roles as buyers or sellers, the students must work with the reservation prices set for them. For sellers, this price is the minimum they are willing to accept for the product; for buyers, this price is the maximum they are willing to pay. As the market progresses through a number of rounds and the price converges toward an equilibrium point, the "invisible hand" of the market reveals itself. If this convergence is not obvious after the students complete the simulation, the faculty member can process and display the data captured from the simulation to better demonstrate the underlying economic principles. - wharton.upenn.edu/learning/market-magic.cfm

From: Lack of money and money creation: the economics - wanadoo.nl - How come economists see no major problem with money created through speculation in stock markets or the sale of natural resources, but have a major problem with money creation by governments for public investment? 
Answer: Money creation in stock exchanges takes place in the private sector. That means that it is subject to, as economic theorists call it, the "invisible hand of the market".
Whereas there may be temporary disruptions, in the end, so economic theory goes, markets always return to a state of equilibrium, or balance. That means a situation in which the demand and supply of money, goods and services are more or less in line with each other. So temporary imbalances are nothing to worry about, as sooner or later, the "invisible hand of the market" will adjust these automatically. 
Overall, then, economist have no problem with money creation by the private sector – neither through speculation in stocks or real estate or, as is generally accepted practice, by banks lending larger sums to consumers and business then they receive in deposits. As long as the invisible hand of the market is allowed to do its work the balance will be restored, and things will be OK. Economic purists do, however, object to government intervention in markets. This is because any government rule, regulation or other form of action that affects the market fetters the invisible hand and thus, affects the hand’s capacity to restore equilibrium. 

Copyright Law & Economics in the Copyright Directive: Is the Droit d'Auteur Passe? 
KAMIEL J. KOELMAN, Free University of Amsterdam - Computer/Law Institute 
International Review of Intellectual Property and Competition Law, pp. 603-638, 2004 
Abstract: In continental Europe, copyright law is traditionally viewed as a so-called 'natural' right - briefly put: it is simply right for the author to enjoy the fruits of his labor. However, socio-economic considerations are becoming more in important in European copyright doctrine. One reason for this tendency is that more and more copyright matters are regulated at the EU level and that the European regulator explicitly adheres to the economic rationale for copyright law. 
In this contribution, it is investigated what the apparent economic policy goals are of the EU Copyright Directive of 2001 - which is by far the most ambitious piece of EU legislation in the area of copyright to date. The purpose of this article is not to set-out new, cutting-edge economic theories on copyright law, but merely to analyze what the explicit and implicit aim of the Directive is and to explore what, according to standard, mainstream and widely known economic theory, will be the likely result of the new regulations on copyright law. Will the Copyright Directive succeed in achieving its apparent goals? What does economic theory predict about its impact? 
The emphasis is on the most important and controversial changes that the Copyright Directive brings about. These are the introduction of a right of temporary reproduction, the limiting of the exhaustion of copyright, the abolishing of remuneration rights and, last but certainly not least, the broad protection of technological measures - i.e. DRM systems. The article concludes that the Directive appears to be based on a great belief in the beneficial effects of granting property rights in information products and in the ability of the market mechanism to achieve an optimal result. However, it may well be argued that apparent faith in the 'invisible hand' of the market is unjustified. Particularly, the public good character of information products is not taken into account. Moreover, the provisions of the Directive may hinder competition to a further extent than copyright traditionally did, which could have an undesirable result as well. Additionally, the apparent reliance on market forces to match the demand for uses with the offered technological usage restrictions may be unsubstantiated. There may be valid arguments for limiting the freedom of contract and the freedom to block any information usage technologically. - papers.ssrn.com/sol3/papers.cfm?abstract_id=428480

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