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The invisible hand is a metaphor inspired by the Scottish economist and moral philosopher Adam Smith that describes the incentives which free markets sometimes create for self-interested people to accidentally act in the public interest, even when this is not something they intended. Smith originally mentioned the term in two specific, but ...
The theorem is sometimes seen as an analytical confirmation of Adam Smith's "invisible hand" principle, namely that competitive markets ensure an efficient allocation of resources.
The idea was also discussed by Adam Smith, the Scottish Enlightenment, and consequentialism (judging by results). [3]The invisible hand theorem is an example of the unintended consequences of agents acting in their self-interest.
Rational choice theory looks at three concepts: rational actors, self interest and the invisible hand. [4] Rationality can be used as an assumption for the behaviour of individuals in a wide range of contexts outside of economics. It is also used in political science, [5] sociology, [6] and philosophy. [7]
This idea is sometimes referred to as Adam Smith's invisible hand. [4] The second theorem states that with further restrictions, any Pareto efficient outcome can be achieved through a competitive market equilibrium, [3] provided that a social planner uses a social welfare function to choose the most equitable efficient outcome and then uses ...
In economics the "visible hand" is generally considered to be the macro-fiscal policy of John Keynes that emerged in the 1930s as a remedy for the shortcomings of Adam Smith's "invisible hand" and advocated government intervention in the economy. [4] Actually, Smith already identified the disadvantages of the "invisible hand". [5]
The theorem tells us that no taxation is Pareto-efficient and that taxation with redistribution is Pareto-inefficient. Because of this, most of the literature is focused on finding solutions where given there is a tax structure, how can the tax structure prescribe a situation where no person could be made better off by a change in available taxes.
Basu has written in favour of Marx's ideal of a society where each person gets according to their need and gives according to their ability. He argues in his book, Beyond the Invisible Hand, that the fault lies not in the Marxist aspiration but in using the wrong blueprint to get to such an ideal. Some of the biggest blunders in history have ...