Question

The following statement by the chairman of General Motors:   “What’s good for GM is good for the economy.” is sometimes cited as an example of Smith’s reasoning of the invisible hand. True or false and WHY?

Answer 1

The idea of the invisible hand is that the economy adjusts itself towards equilibrium and no external government influence is required for it. The statement does not directly correspond to the invisible hand as what is good for Gm at the micro level may not necessarily be good for the economy as a whole. So this statement is not true always. The idea of the invisible hand refers to an automatic adjustment to equilibrium and this may not be the case for a private firm always. So what is good for general motors may not be good for the economy. This is not true.