It’s not often that we can take a historical figure from the past and compare their thinking with our modern ways. Our world is constantly changing, with new technology on the rise and different laws going into effect, we can’t stop the speed at which our globe is spinning. However, some ideas have remained the same, with little to no change—one of those ideas is the practice of free market economy.
This concept arose during the 18th century and was inspired by a man named Adam Smith. He was a Scotsman who was dedicated to studying the world, its economic systems, and the global effects of creating a free marketplace. You might know him better as the author of The Wealth of Nations, a work that is still widely used by many politicians, economists, and scholars. At Free to Choose Network, we decided to take a closer look at Adam Smith’s life and figure out the exact impact that he made on our society today. Our media executive, Cato Institute Senior Fellow Johan Norberg, explored the different ways in which modern global economies mirror Adam Smith’s Great Awakening era, and the astonishing part—we are able to relate the two to one another, despite the three-century difference.
If you’re unfamiliar with who Adam Smith is, it’s OK—you’ll find that even though his name might not sound familiar, his way of thinking runs the majority of our world today. From laissez-faire policy to the invisible hand metaphor all the way to free market trade, Smith foresaw these ideas and predicted their benefits for millions of people around the world.
In this short piece, I’d like to talk particularly about Adam Smith’s phenomenon, the invisible hand. Explained in simple terms—the unintended social benefits that result from self-motivated actions tend to have better consequences than actions that are intended specifically for social benefits. I know, that probably seems a little confusing so I’ll use an example. Let’s say I decide to become a business owner and want to start manufacturing computer chairs. My main goal is to create a successful business, however, I can easily do a lot of good things for a lot of people in the process.
In order to make a computer chair, I would need not only products but I’d also need workers to make the product for me. I would create various jobs in this process, ones that would involve the manufacturing of my product but jobs that would involve distribution, marketing, and eventually mass-output. You see, it all started with my self-interest of becoming successful but I ended up helping many people in the process, I created jobs and also provided the general public with well-made office furniture.
Looking at the other end of the spectrum—let’s say I decided to just buy computer chairs in bulk and give them away to local start-up companies. Although I’m trying to do something out of the goodness of my heart for society, I’m not really helping “the majority”; in other words, I wouldn’t be contributing to the “bigger picture”.
In our first scenario, my desire to become a prosperous individual benefits a greater number of people than my desire to actually help those in need—a bit counterintuitive, right? Without a doubt, this idea sparked the interests of many people in the 18th century and continues to spark our minds today. This is the beauty of Adam Smith’s philosophies—they aren’t bound by time and can be practiced in any generation—past, present, and future.
If you are interested in learning more about who Adam Smith really was, click here.