Adam Smith proposed that a free market should exist whereby government intervention should not exist. In fact, there was no need for any intervention as Adam Smith claimed the free market or the invisible hand of nature would be self correcting .
If governments stepped in, prices would only be made higher and demand and supply would never be in equilibrium.
In theory,this all seemed perfectly plausible but in practice even the term equilibrium became problematic. The Wall Street crash and the recent debt crisis depict the failures of the once glorified Invisible Hand.
Other criterisms of the free market are that it widens the polarisation of the classes. Moreover , people rather than feeling in a state of stability feel insecure and are pessimistic to invest within an economy. One day the economy may boom and the next may be in a slump.Capitalist economies have also been accused of promoting a selfiah way of life while ignoring the basic needs of the general population.
Perhaps the reason why this theory gained so much support is because of its political context as evidence till date does not support it. Liberalism was gaining it's tide and the masses promoted individualistc values. Moreover it supported the idea of freedom of choice as well.
Therefore, politics can largely influence the economic sphere.
To see how the invisible hand failed
https://robertnielsen21.wordpress.com/2012/12/29/the-flaw-of-the-invisible-hand/
If governments stepped in, prices would only be made higher and demand and supply would never be in equilibrium.
In theory,this all seemed perfectly plausible but in practice even the term equilibrium became problematic. The Wall Street crash and the recent debt crisis depict the failures of the once glorified Invisible Hand.
Other criterisms of the free market are that it widens the polarisation of the classes. Moreover , people rather than feeling in a state of stability feel insecure and are pessimistic to invest within an economy. One day the economy may boom and the next may be in a slump.Capitalist economies have also been accused of promoting a selfiah way of life while ignoring the basic needs of the general population.
Perhaps the reason why this theory gained so much support is because of its political context as evidence till date does not support it. Liberalism was gaining it's tide and the masses promoted individualistc values. Moreover it supported the idea of freedom of choice as well.
Therefore, politics can largely influence the economic sphere.
To see how the invisible hand failed
https://robertnielsen21.wordpress.com/2012/12/29/the-flaw-of-the-invisible-hand/
1 comment:
Overtime, much has changed. Evolution is taking us up the ladder to perfection and every step in between is closer to the top than the last. Adam Smith's idea of the Invisible Hand might have 'failed', however, like every other step it was a necessary one for if we did not climb up to it, we would not be able to move further up. Hence, along with giving healthy criticism, we should also try to find ways to improve the current system in order to continue our journey to success.
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