Adam Smith and the Invisible Hand Theory Explained 

No. its not adam smith envisioned , yes for the basic theory, but not like the video examples and nowadays practical capitalism. But its the best video and sinplified basic theory and idea of capitalism, ( not by adam smith though), good job

Thats pretty much what he says

​@@Cutecumball Not really. He focuses everything on purchasing products and price. The core of the concept of the invisible hand is not just people choosing products and prices, but that people actually go earn their livings based on their own self interest and without anyone telling them what they have to do, and without anyone directing their activities towards a final product, yet lots of people doing these individual tasks every day leads to final products that are useful. That is a lot more profound and more fundamental to the concept than what he talks about here. Also, Adam Smith is not just the father of laissez faire economics. He is considered the father of economics, full stop. He also implies that this theory does not work out in reality. The invisible hand is not just theory- it is observable every day. It is really allegory as opposed to theory. A lumberjack cuts down trees Oregon, a Mexican works at a graphite mine, and a shop keeper sells a pencils. They don't work together, and no one directs them towards that final product, yet it happens every day- just because they are all trying to make a living. Now there are lots of other theories, details, concepts, and understanding in modern economics that has developed since Smith, but the core concept of this remains true and observable.

basically indirect cooperation due to self-interests which drives the economy is what this all is

@@patrickmacleod2415 so basically like Dominando said, you are saying the same thing. Basically the CheeseOrama owner decided that they cannot get good cheese anywhere these days, especially since they are obsessed with it and like different varieties right. Going through the #FarmersWeekly magazine just to find all the farmers with the different cheeses is not cost effective when they just buy it for themselves. Imagine driving to different farms in different locations just to get their fix of cheese. So knowing that a lot of people read the magazine possibly with the same problem he faces, he figures that the best way to get the cheese he wants everyday, at will, is if he can find it all in one place. So a CheeseOrama would fulfill his needs and his fellow #FarmersWeekly readers. So he effectively acts independently by deciding to open a CheeseOrama, maybe he finds out from the magazine about how many people in his vicinity write to the magazine about where to find cheese. He collects his statistics and opens a store. Something he does independently like your stationary shop. And then of course, he calls all the farmers (in your example, the lumberjack and lead retailer {because the graphite miner does not necessarily convert the graphene into lead right}) with the good cheese, to place an order and hires some suitable transport person to deliver the cheese to his store (because he is using different farmers, so it is more convenient for the transport guy to fetch all the cheese unless the farmers are able to make their deliveries to the store, but imagine the traffic that would cause right {in your example, is it the stationery store or the pencil brand maker we are talking about?}). Anyway, our class teacher leaves a lot to be desired on my part. I am guessing people who watch this video have gone to University and came across Economics as a subject, so we are familiar with the normal economics terms like Indifference Curves and Marginal costs. Making it seem so basic, really takes away from the meaning he is trying to convey. With that said, I would shop at CheeseOrama before I set foot in that other place, because of aesthetics, because a person who takes the time to define the look of the cheese store knows that good wine takes time 😌 (ok I'm just saying that, because it sounds good to say it, I do not actually know). My understanding of the theory he presented about how the economy works is that there are two economies essentially: those with regulated prices and those with free trade. For example, certain petrol is regulated in South Africa, let's say the 95 petrol price is set by government, and the other fuels are like 93 or Diesel you can name your price as a garage after the government does its'price adjustments. Now since 95 is the same price across all garages, I am no inclined to just pour fuel at any garage because of aesthetics. My dilemma being that the garage I prefer is few and far between. Now the reason I prefer #Shell is the quality. Some other person does not experience my problem, because an apple is an apple to them (because there's simply apples I will not eat right). So the way it is explained here, 'the invisible hand' will force me to relocate my whole life to a place with a #Shell garage because I love my #BMW, whereas some other person will choose diarrhea by going to Cheeseopolis.

​😊😊😊😊😊😊😊

Haha, thanks! I appreciate the kind words!

Thank you for the kind words! I'm glad it was helpful. :)

@@KorczyksClass I got lucky as my College showed me this video, so much better than a week on Wealth of Nations to understand the concept. My Teacher said we don’t really need to read it entirely to get the idea as it’s “So much more about corn than it needs to be.” 🤣

😭🤣🤣 you guys are hilarious. This is why I love Ecos.

I wish Middle School would! 👈🏼

It's definitely interesting seeing these theories play out in the real world. 😅

@Mister Bister The point is that it’s illogical to create an economic system based on the “invisible hand of God” instead of relying on the scientific method…data and analysis wins over theology every single time.

I hope it helped! :)

That's how Smith's ideas are supposed to work. :)

Glad to hear it! I hope your exams went well!

Glad it was helpful!

Dan! Long time no see! I'm glad you're finding them useful! How'd you find the video, just out of curiosity?

@@KorczyksClass It was super-useful! I don't even teach h.s. anymore, but I've brought up the invisible hand with my grade 9 classes so I was looking for something simple enough for them to grasp. This fits the bill big-time.

Thank you! I'm glad you found it helpful! 😊

Happy to help!

😂🧀

Those are definitely common criticisms of the invisible hand. Thanks for the comment!

But than it aint a free Market

Except when Cheesopolis lobbies the government for pro-cheese policies that would directly benefit them above competitors. The invisible hand is no match for the interests of Big Cheese.

True, man even said to influence policies which does in fact have an effect on the market @@matheussouto3673

Your socialist ideology has been failing for the past 200 years at 100% rate in 30+ countries. You fail to realize in a free makret economy, the workers are private individuals instead of a collective group, they can be workers or the be the owner of something. That's what i meant by socialists inherently lack empthy. You imagine this unsustainable utopia world and compeletly ignore the nature of humanity. Thats why you failed and will always fail

Prosze bardzo! Pozdrowienia!

Absolutely, at the expense of others though

@@bensonbeebarry2055 true, but I would certainly take some corrupt idiots that still allow us to do as we please, than a corrupt government that forces people to do what they want. Very very simplified I know but I’m not getting into the nitty-gritty

Most welcome!

Thank you! Glad you liked it!

Thank you so much! I hope you found the video helpful! 😊

Good question! According to free market theory, it would be a pretty bad thing as it would mean no more competition. Many capitalist countries have laws in place that are meant to prevent it from happening. In the United States, the Sherman Anti-Trust Act is one of those laws designed to give government some power to break up monopolies.

​@@KorczyksClass Thank you! So much I already had heard, in this case at school. Monopolies indeed seem to mean a pretty bad thing. In particular, a monopoly will come together with a lead in attainable quality. I.e., if you enforce that such a company is to be split, you at least for some time will cause that consumers can't obtain the same quality, any more, as easily as before. As long as you divide only the bad ones, it's not so much of a problem, but when you begin to act against the best, you'll appear as a person who artificially creates difficulties, resulting in the situation that you refrain from such attempts and let communism flourish. Google Translate recently has outputted nonsensical equivalents for Chinese characters because they simply have neglected to label expressions thematically. A recognition of the thematic orientation of the characters would have been possible, but Google only factored in the _pronunciation_ with its many ambiguities. Currently, a competitor of RU-vid doesn't seem to be in sight, while you on RU-vid often are exposed to unpleasant sound effects. You can assume that RU-vid fails to act against such downsides because they fear that video makers might begin to long for another place to upload. If a competitor already existed, they perhaps wouldn't be so generous. Forbidding things, they wouldn't appear that much as merciless and wouldn't have to lose that much. They altogether could proceed much more flexibly, freed from a certain _inertia_ that comes with a hegemony. Clashes they now still try to avoid, in a cramped way, would already have happened, in the form of the _introduction_ of competition. Competition could begin to unfold its beneficent effects. Even if you learn Chinese to become able to exploit China's Hǎokàn, you currently by far are not (yet?) offered a comparable amount of videos of some greater length, by the latter website. And to be able to upload on this website, you need a Chinese telephone connection. Living in Austria, I observe that you have one big chain (with a market share of c. 33%) of grocery stores a consumption of the best produce of which makes you perhaps ten times healthier than you are when you buy elsewhere. There are two other big chains (with c. 34% and c. 20%) offering some comparable products but altogether failing to reach a comparable assortment. With that best one of the big chains, the personnel often is unfriendly, and of course, you'll presume that you're dealing only with the tip of an iceberg of other shortcomings. Apart from the big chains, there is a tiny group of supermarkets which only sell organic products. Altogether, you can assume that you have a downright unbelievably good constellation. If the group of organic supermarkets improves its assortment, the 33-percent giant will follow suit, and if this giant fails to do so, the other giants might begin to surpass them. Nevertheless, the organic markets (for certain offering the best products) are hundreds of kilometers apart and only in heavily polluted areas. Recently the big chain with the good products has merged two subchains into one, for the sake of a bigger efficacy and with a loss in the variety of products. A fourth big chain with quite good products has disappeared, and so have numberless tiny eco-grocers. As an average consumer, you currently are dependent on that one chain, if you do not want to hugely reduce your bodily and mental performance. That sort of a peak achievement of one supplier is crying out for another division, after capitalism has produced it - like with IBM in the second half of the 20th century and perhaps until today. You largely can only see what immediately surrounds you, just like the inhabitants of the Soviet Union before the arrival of the first Western tourists around 1960, and you slowly begin to wonder if together with such a growth of an economic monoculture at home, there might also be emerging some faraway region of the Earth (China?) in which you (soon?) will become able to experience a totally different, altogether much higher level of supply. After all, it certainly could be much better still, in Western countries, than it is. On ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-QQwQklUcXf4.html (Chinese Vocabulary - Fruits & Vegetables, by Learn Chinese Mandarin), I already am confronted with a cornucopia of fruit and vegetables which I even haven't ever heard of. I also am reading that in the officially still communist China, a much higher percentage of cars than in the USA already is electric. They begin to build batteries for such vehicles which Western commentators only can marvel at. Obviously, there exist other factors of some important relevance than only the policy of a division of monopolies. If producers and consumers don't enable that a certain quality will be supplied, through producing and buying it, you even in a strictly capitalist society can end up with a lower wealth than in a (much more) communist one. During the time of the Soviet Union, you had many capitalist regions of the planet with a much lower standard of living than the Russian (for example, in India). Doesn't, in the end, happen the real competition rather between the several workers of a producer (like it was organized in the Soviet Union) and the several consumers? If an unwritten taboo forbids that a worker delivers a certain quality, and such a taboo also forbids that you _buy_ a certain amount of a certain quality (for example because you have to buy an expensive car, suit, or house, to represent a company, rather than the less visible organic food you move into your body), you'll end up with a monopoly of poor products, even in the middle of a polity with the most effectively applied anti-trust law. That is a capitalistically subdivided monopoly of stupidity, then, a sheer dance around the golden calf without any usable final good.

They can either sell their products at a reasonable price or abuse their power and raise the prices to the roof. In the second scenario, people will be forced to pay a very high price to get what they need and the company will make a huge profit. For a while at least. Some time into the future some businessmen will see that the industry/sector is very profitable and will shift in. And this is the point at which price competition starts. Of course the large company could use predatory pricing techniques, but the practice shows that it's usually a fight with hydra. Cut off one head and another two will arise. You can run a loss to eliminate competition, but when you do and then bring prices back up, new competitiors will appear sooner or later. It's financially suicidal in the long run. The only way to sustain a monopoly in a free market is to offer the cheapest products of the highest quality, while being able to satisfy all the demand. But in such a case, it's not at all harmful to the customers.

@@janr.9192 The hydra with the many heads emerges because the components you need for a product have their own prices, doesn't it? I.e., if you continue to offer a product for less money than you have to invest in it yourself, the competition will arrive in no time.

🙌

They can either sell their products at a reasonable price or abuse their power and raise the prices to the roof. In the second scenario, people will be forced to pay a very high price to get what they need and the company will make a huge profit. For a while at least. Some time into the future some businessmen will see that the industry/sector is very profitable and will shift in. And this is the point at which price competition starts. Of course the large company could use predatory pricing techniques, but the practice shows that it's usually a fight with hydra. Cut off one head and another two will arise. You can run a loss to eliminate competition, but when you do and then bring prices back up, new competitiors will appear sooner or later. It's financially suicidal in the long run. The only way to sustain a monopoly in a free market is to offer the cheapest products of the highest quality, while being able to satisfy all the demand. But in such a case, it's not at all harmful to the customers.

@@janr.9192 thanks just like here in our city almost all establishments here owned by a single company or owner they are strict on new investors to establish their business that`s because they are afraid that their business is overwhelm. Thank you for this

Welcome! All the best!

Welcome! Thanks for the comments!

Thanks, I hope it helped!

Haha, yes! 🧀

@@KorczyksClass :D

Hope you found it helpful!

It does. If only the government stopped bailing out big failing companies

If it were applied correctly it would.

@@CombatDoc136 elaborate

lmao wut. have u read the book?

@@Cutecumball Book 4 chapter 8 if I remember correctly

@@KidFictionOfficial He meant mercantilism and he against it. Mercantilists thought preventing imports and promote exports will make their countries wealither and its wrong. So basically he prefer free trades

@@Cutecumball Yes, but this position has very obvious flaws, which Smith recognised, that was the whole point of the chapter. If there were no import tariffs why wouldn't English businesses just buy products from Poland for half the price? The whole point of the chapter is to make an arrangement (a really bad argument) that English businesses would be moved to buy from local suppliers "as if by an invisible hand". It's a stupid argument, that only really works to prove the limits of free trade.

@@KidFictionOfficial "If there were no import tariffs why wouldn't English businesses just buy products from Poland for half the price?" that's wholesale. Free trade is about trading with whoever you want to with as less government intervene as possible. But I'm still confused about your argument. Can you make it more articulate