reflection

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Reflection
The invisible hand refers to a concept which was developed in the 18th century by Adam Smith to explain how self-interest controls the market and ensures that the supply and demand of goods are at equilibrium. There are three versions of this concept that appeared in Adam Smith’s work. The first version appeared in ‘Essay of Anatomy’ and it was about the superstitions and believes of the early life. The second version, which occurred in ‘The Theory of Moral Sentiments’, was about the income distribution theory; in ‘The Wealth of Nations’ Smith used the concept of invisible hand for the third time (Jonathan 343). He explained how entrepreneurs are compelled to invest domestically and how it affects the domestic economy. The three versions of the invisible hand are connected in that; they all try to explain how instincts control one’s behavior.
The role of institutions in the invisible hand is to help in the moderation of impulses (Jonathan 344). Since the whole concept relies on the interests of an individual, institutions may take part in aiding people to gain some self-control. By instilling self-control, these institutions will be creating a moral background which helps in economic development. Apart from institutions like schools, churches, and family, a competitive market environment is another institution that develops morality since it connects one’s efforts to his or her final reward. It is significant that human passions are compatible with the institutions for the invisible hand to work properly.

It will be difficult to have a complete Laissez-faire process take effect in the modern economy. A state where there are no regulations and businesses do whatever they please is a dangerous place. Entrepreneurs work in harmony, not just because they like to, but also because at the back of their minds they are aware of the existence of the rule of law. If the government backed out, the market would turn into evil. For instance, businesses like drug trafficking would be done in broad daylight without any fear; the strong would suppress the weak and insecurity would grow even farther.
Smith believed that the government had a role to play to ensure the effectiveness of the invisible hand. However, the role was limited to non-economic and little economic related issues. Other institutions are supposed to instill self-control to individuals involved in the market. Similarly, the government is supposed to do the same by ensuring law and order. There are other roles that the government can take without interfering with the invisible hand. For instance, providing a favorable environment and responding to emergencies.  

Work Cited
Jonathan B. Wight “The Treatment of Smith’s Invisible Hand.” The Journal of Economic Education Vol. 38, No. 3 Summer, 2007, pp. 341-358.