How the principle of the invisible hand of the market works
The principle of the invisible hand of the market is a term coined by the Scottish economist and one of the founders of modern economic theory, Adam Smith, to explain the mysterious processes in the market. He realized that the behavior of buyers and sellers in the market is determined not only by their desires, but also by some third party that is not visible.
For the reason that this side is not visible and clearly has to do with the market, it was called the “invisible hand of the market.” This third party coordinates the decisions and desires of buyers and sellers, and does this unnoticed by them. During the transaction, they receive information not only from each other, but also from this very invisible hand of the market.
Moreover, they not only receive it, but also take it into account when making decisions. The fact that the influence on the decisions of buyers and sellers is imperceptible, and also independently of them the principle of the invisible hand of the market consists. This principle has one very interesting consequence, which affects both individual businesses and the economy as a whole.
The invisible hand of the market can influence the decisions that buyers and sellers make. She has a voice in any transaction and can give it to both the seller and the buyer. Everything would be fine, but the expression “invisible hand of the market” is a little scary. Everything that is not visible is not clear, you do not know what to expect from the invisibility, you do not know whether this is a friend or an enemy.
Accordingly, the question arises, but what is such an “invisible hand of the market”? The answer to this question is very simple. Everything visible is material, which means that the invisible hand of the market is not related to the material. If not material, it means ideal, because there simply are no other options. Accordingly, an invisible hand is an idea.
But what kind of idea is this? Everything is logical – this is the idea that underlies this particular market. Each market has its own idea and, accordingly, its own “invisible hand.” It is the idea underlying the market that is the invisible hand that controls it. The idea is invisible in itself, and therefore controls invisibly.
More precisely, the invisible hand controls the elements of the market: manufacturers, consumers, distributors, developers, marketers and creators. The idea underlying the market connects all the elements of the market and controls its development. A detailed diagram of the market is presented in the picture above.
However, there is one problem. The bottom line is that the expression “principle of the invisible hand of the market” has a double meaning. On the one hand, it indicates that there is a certain market mechanism, but on the other hand, it indicates that the invisible hand of the market is guided in its actions by certain principles. In other words, the invisible hand has principles.
Knowing these principles, it can be used to your advantage. How can I use the invisible hand of the market to my advantage? As already mentioned, she has a voice in any transaction and can give it to one side or another. If he wants, he will give it to the seller, and if he wants, he will give it to the buyer. We can say that the “invisible hand of the market” is engaged in sales.
Accordingly, it can be used, first of all, in order to increase sales. It is clear that if she votes for the seller, the buyer will be forced to buy goods from him. It is enough to get her vote to sell the goods. Many products are still selling poorly because the “invisible hand of the market” does not cast its ballot to their sellers.
Since it does not give, it means that it contradicts its principles. Of course, the first principle of the invisible hand of the market is that it helps only its own. It is clear that there is no sense at all in helping someone else. Accordingly, in order to get a voice from the invisible hand of the market, you need to get to know her, but it is better to be on friendly terms with her.
The second principle is to help only when help is really needed. If they help, when they don’t ask, they can send them to hell. This very often happens and she is well aware of this. The third principle – it helps only goods about which it has enough information, goods that the market really needs. This information needs to be passed on to her.
She herself will not ask her, guided by her second principle. Moreover, the more information is transmitted to the invisible hand of the market, the more likely it is to get her vote in her favor, because the more information she has, the easier it is to convince the buyer to buy the product. To transmit information, it must be with the seller.