Economic Homework.....?

Question

Be more specific to this... "What are the forces that together compromise the invisible hand"................

Answer 1

I don't think you can compromise a hand. With whom would you be compromising?

Answer 2

The price system.

Answer 3

Grampp’s survey of ten invisible hands:

1. Self-interest promotes the general interest. This is the most common interpretation

according to Grampp, but he claims this only holds true in competitive markets when capital is maintained domestically and only when people actually follow their self-interest (and Grampp gives several reasons why they often do not).

2. The invisible hand is the price mechanism. This is another common interpretation

that Grampp rejects because Smith’s equilibrium only maximizes welfare when wealth is maximized by traders who restrict their trading to domestic markets.

3. Grampp labels the Neo-Austrian view of the invisible hand as the metaphor for how beneficial social orders emerge from the unintended consequences of individual actions.

4. The invisible hand is competition. Grampp finds that Smith did not discuss competition when describing the invisible hand and did not declare it present in

all competitive markets or self-interested acts.

5. The invisible hand is the mutual advantage from exchange. This mutual advantage

is not at all invisible in Smith and he does not discuss it in describing the role of

the invisible hand.

6. The invisible hand is a joke. A recent and novel interpretation in the AER13 based on the idea that the meaning of the term is not consistent in its three uses. Grampp

finds that while there are three uses with distinct meanings, this hardly means the term is a joke or without meaning.

7. Acquiring skills and knowledge in business leads to increases in wealth. You could use an invisible-hand explanation for this process, but this process has

nothing to do with Adam Smith’s use and like #3 provides nothing of use for the economist.

8. The invisible hand is God.

9. The invisible hand promotes the national defense by preventing the export of

capital. Grampp likes this explanation best of all because it is most like his own

(i.e. #10).

10. Grampp’s interpretation, which he claims is Adam Smith’s own interpretation, is

that when individuals’ self-interest leads them to keep their capital at home, rather

than exporting it, this promotes the national defense. In his own words, the

“invisible hand then is self-interest operating in this circumstance, the

circumstance in which a private transaction yields a positive externality that

augments a public good.”

the meaning of Adam

Smith’s invisible hand is hardly one of antiquarian interest. It is at the heart of what

aligns and divides us as economists. Indeed, it would seem to be the matter which defines

economics—a general scientific notion of the process that encompasses both economic

stability and growth. And this is where Smith still has something important to offer, in

the sense that the invisible hand goes beyond equilibrium theorizing to include economic

change which is not somehow preordained.57 Thus, while our concepts of equilibrium and

the invisible hand have certain similarities and in some sense depend on each other for

their meaning, Holcombe (1999, 2006) has shown that the absence of the invisible hand

in modern economics undermines our understanding of the economy and creates several

problems of practical import.