The Invisible Hand Versus the Visible Hand

Dilip K. Das
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Dilip K. Das: Ecole Supérieure des Sciences Economiques et Commerciales

Chapter 5 in Korean Economic Dynamism, 1992, pp 141-158 from Palgrave Macmillan

Abstract: Abstract Adam Smith reacted against any ideas that supported the use of political power to achieve economic ends and dismissed them as mercantilistic. Since he invented the term ‘invisible hand’, economists have debated over the strengths and limitations of the market forces. The Smithian vision of the invisible hand treated markets as complete; all market information, according to him, was summarised in prices. But his vision is shattered when a decision unit, or an economic agent, has the market power.1 By market power I mean a situation in which an individual’s action can influence the equilibrium prices. This vision is also affected by what Fred Hirsch calls the ‘positional good’. Many sources of economic advantage depend on the relative position of a person vis-a-vis others, like someone holding an important job or having access to an uncrowded beach. Since the total supply of positional good is fixed, ‘what winners win, losers lose’. There is little scope for the market to enhance efficiency.

Keywords: Market Power; Foreign Exchange; Market Failure; Market Force; Invisible Hand (search for similar items in EconPapers)
Date: 1992
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DOI: 10.1057/9780230373853_5

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