Adam Smith: The Invisible Hand

What did Adam Smith actually mean?

Adam Smith is considered to be the father of modern economics. He wrote a book called The Wealth of Nations. He described his ideas about the free market and how it worked. This book influenced governments and other economists for centuries.

Smith was born in a small village in Scotland. He went to the University of Glasgow at age 14, but this was normal for the time. At age 17 he went to Oxford University in England. He said later that the professors there did almost no teaching, and he ended up teaching himself.

Smith then became a professor in Glasgow. He spent his evenings with other well-known Enlightenment thinkers and scientists. Together, they talked over important ideas. During this time, Smith wrote his first major book, The Theory of Moral Sentiments. It was one of the books in which he used the phrase, “the invisible hand.” He would become well known for this phrase. He said that even though people seemed to put themselves first, often good things would come out of it for society. It was like an invisible hand was guiding them.

Smith then got a better-paying job. He spent two years tutoring the son of a duke and traveling around Europe, meeting more intellectuals. He began writing The Wealth of Nations during this time. He returned to Scotland in 1766 and published the book in 1776. In it, he described how people were born mainly wanting to do things to help themselves, such as earning money. But, this would end up helping society, too. People who got a job would produce things that other people wanted. People who wanted to own businesses would create jobs (such as in a factory). This would provide income to others. Again, it was like they were guided by “the invisible hand” to produce something that wasn’t their original goal.

He also described how nations’ economies had changed and developed throughout history. He predicted that they would continue to become wealthier by the division of labor. He meant that people would learn to do one small part of a big job and would do it over and over (and this came true). He said that when businesses can compete with each other for customers, it would allow the invisible hand to work. The government didn't need to get involved, because people would only pay so much for a product, and so they would really be deciding what the prices would be. Wages for employees would work the same way. However, he did believe that the government should regulate some things and should provide public services.

Smith was appointed commissioner of customs in 1778 and died in 1790. He left no direct descendants.


1. What did Smith mean when he said, "the invisible hand?"

2. What did Smith mean by a division of labor?

3. What did Smith think about government involvement in the economy?