Politics in Minutes (2016)
The ‘invisible hand’
During the Enlightenment, a sea change in the approach to ‘political economy’ provided the basis for liberal economic thinking. In 1776, Adam Smith published The Wealth of Nations, which laid the foundations for modern economics, and provided the rationale for an economic model that has been at the heart of liberal democracies ever since. Smith argued that people are rational and act in their own interests if left to their own devices. In commerce, their actions are influenced by the laws of supply and demand; order and equilibrium is maintained by the ‘invisible hand’ of a free and open market.
Smith asserted that if business is left to operate in a free market, individuals and firms work to their mutual benefit and ultimately for the good of all. The idea that a market economy, free of restriction by government, would bring stability and prosperity to the community as a whole fitted ideally with liberal philosophy, and has figured in all forms of liberal economic policy.