Question

What is the definition of the invisible hand for Adam Smith?

Answer 1

For Adam Smith, Invisible hands mean the demand and supply forces in the market. According to him everyone in the economy works for his interest and have perfect knowledge of the economy.

If a seller has increased the supply of some goods and he wants to sell it at a higher price the demand for that good will be less. The seller will have to bring the price down in order to sell his goods. Similarly, if the demand for the goods is high the sellers will increase the price of that goods. This will continue to the point where the demand of the good will be equal to the supply of the good.

This force which makes the demand and supply of goods in the free market to reach an equilibrium is known as an invisible hand.