The Forces behind the Invisible Hand

3. What is ‘hidden’ about the ‘hidden hand’? Explicate the following: This division of labor, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.” (I, chapter 2)

Smith suggests in this quote that the capacity for the trading of goods and services is a feature inherent in human beings, and it is this very feature that allows for the division of labor to occur in human societies. Humans, just like animals, act selfishly in pursue of their own interests. But our ability to trade with each other provides us with a far more efficient way of acquiring utility for ourselves than we could have ever had if we simply produced everything for ourselves. It enables each person to produce what he has a comparative advantage in producing, then trade it for products he desires that are produced by others, thereby increasing each party’s utility, making trade consistent with each party’s individual pursuit of self-interest. This is the fundamental basis through which the division of labor is allowed to occur naturally, without explicit planning or guidance, all because of human nature’s innate selfishness as well as its propensity to trade. Such is what makes the invisible hand “invisible”, as the only forces at work behind these interactions are these two passive properties of human nature. 

These acts of trading at the individual level could then be amplified in scale into the global economy, yet the central principles behind its functioning remains the same. The free market exists and operates efficiently only because of individual humans’ self-interest and capacity for trade. No one consciously acts in the best interests of the market’s or the nation’s economic wellbeing, since one “intends only his own gain. [And yet,] he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention,” (485) that is the welfare of the market and of the nation. The invisible hand, on the broader, societal scale, remains invisible in that no individual is specifically working to ensure the market functions properly, yet its effects becomes more profound as it is what drives each market to its natural equilibrium price and quantity, meanwhile maximizing efficiency and the utility of the participants. Such is the essence of the ideology behind free market capitalism, where the lack of interference in the market produces the best possible outcome overall, as the invisible hand, in the form of forces inherent in human nature, guides society toward that goal.