Invisible Hand

The metaphor of the invisible hand comes from the work of Adam Smith (1723–1790) and is a [Page 354]key concept of the Scottish Enlightenment. It is generally used to describe processes through which the intentional actions of individuals bring about outcomes that were not directly intended or designed by them when planning those actions. A similar line of reasoning can be found in the statement by Adam Ferguson (Smith's contemporary) about institutions that are the result of human action but not of any specific human design.

The metaphor of the invisible hand is used by Smith both in The Theory of Moral Sentiments and in The Wealth of Nations and plays an important role in his “system of natural freedom” (another, possibly earlier, use occurs in his History of Astronomy). The invisible hand, by leading agents to promote social ends that were not part of their individual intentions, ensures that choices made on the basis of individual self-interest promote the common good. A precursor to the invisible hand can arguably be traced back to the Fable of the Bees, where Bernard de Mandeville argues that “private vices” may under certain conditions lead to “public benefits” that are in the interest of the whole community. When used in this more restricted sense (i.e., of leading to positive unintended social outcomes and not just unintended social outcomes), the invisible hand metaphor is often employed in arguments in favor of the operation of the free market.

Depending on how the invisible hand mechanism is understood, it has different implications in terms of power in society. A literal reading of the invisible hand metaphor brings into play the operation of supernatural powers. In this case, the possible harmonizing social effect that makes individual actions result in unintended consequences is brought about by divine intervention or at least divine purpose. Another reading of the metaphor consists in using it to account for institutional processes through which the results are brought about by self-regulating mechanisms. In this second sense, individual hand explanations (an expression coined by Robert Nozick) are used to describe social outcomes that come about through a multitude of individual actions but are nevertheless beyond the power of a single mind or group of minds working together to purposively bring about.

Skeptical views about the invisible hand metaphor emphasize that in some cases the unintended consequences produced are either undesirable or enforce a preexisting unjust power structure (a criticism that disputes the desirability of allowing the invisible hand to operate but not the concept itself) or argue that the metaphor hides or obscures the intended and purposeful action of visible powers in society.

Invisible hand explanations in social science have been applied to such institutions as language, money, and even the price system in a free market—all understood as the unintended result of the decentralized and not consciously coordinated action of millions of agents interacting in the social order.