Self-Interest and the Invisible Hand

The natural tendency of individuals to act in their own economic interest is often considered a negative and selfish aspect of the economic system.  However, the dominance of economic self-interest drives the economy and creates a balanced and smoothly flowing system through which commodities and services can be exchanged and obtained.

The true economic goal of an individual is to benefit himself to his maximum ability.  His actions and goals are driven by the idea of personal gain, not in terms of the advancement of others.  However, to be actively involved and prosperous in the economy, individuals must interact and benefit from one another.  In The Wealth of Nations, Adam Smith describes the economic interactions that occur between people in the market as “give me that which I want and you shall have this which you want” transactions.  When each person involved in a financial deal enters into agreement with his or her desires and interests at the forefront of his or her decision making, each will act to insure personal success and in doing so will obtain his or her wants.  

Because individuals must interact or work together to be economically successful, the economy is driven and held together by the personal interactions between various consumers and producers alike.  While some ultimately are more successful in terms of finances, as in the case of the businessman and his more menial laborers, each still works with a passion to achieve and maintain a favorable standard of living.  “A man must always live by his work and his wages must at least be sufficient to maintain him…”

Society benefits from the self-interest of individuals even if this is not the immediate intention of each individual.  In the case of national commerce, for example, the individual purchases products made in his own nation as opposed to foreign imports because “homemade” products are often of better quality, more affordable without imposed duty charges and importation fees, and reliable in terms of their place of origin being known.  Buying nationally not only provides the individual with his preferred and presumably better-quality product, but it bolsters the economy of his nation as well.

Acting out of self-interest, individuals keep the economy running in a balanced and reliable manner.  The market runs optimally when individuals are forced to interact out of want of personal gain. When each individual puts the needed effort into succeeding financially, whatever this may mean on each personal level, an “invisible hand” keeps the economy running smoothly.

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