Society, Politics & Law
  • Video
  • 5 mins
  • Level 1: Introductory

60 second adventures in economics: The Invisible Hand

Updated Monday 10th September 2012

In the first of our six short videos on economic theory, watch how an Invisible Hand drives the economy. Eventually.

David Mitchell is waiting to explain six key economic concepts in sixty seconds apiece. Which is pretty economical in itself, if you think about it...

Transcript: An economy is a tricky thing to control, and governments are always trying to figure out how to do it.

Back in 1776 economist Adam Smith shocked everyone by saying that what governments should actually do is just leave people alone to buy and sell freely among themselves.

He suggested that if they just leave self-interested traders to compete with one another, markets are guided to positive outcomes 'as if by an invisible hand'.

If someone charges less than you - customers will buy from them instead – so you have to lower the price or offer something better.

Wherever enough people demand something, they will be supplied by the market – like spoilt children – only in this case, everyoneʼs happy.

Later free-marketeers like Austrian economist Friedrich Hayek, argued that this ʻhands offʼ approach actually works better than any kind of central plan.

But the problem is, economies can take a long time to reach their ʻequilibriumʼ, and may even stall along the way. And in the meantime people can get a little frustrated, which is why governments usually end up taking things into their own more visible hands instead.

 

For further information, take a look at our frequently asked questions which may give you the support you need.

Have a question?

Other content you may like

Does an invisible hand guide the economy? Copyrighted image Icon Copyright: BBC video icon

History & The Arts 

Does an invisible hand guide the economy?

This short animation, narrated by Aidan Turner, looks at the metaphor of the 'invisible hand' engineers the economy. 

Video
5 mins

Society, Politics & Law 

60-Second Adventures in Economics

Ever shaken an invisible hand? Been flattened by a falling market? Or wondered what took the bend out of Phillips' curve? David Mitchell helps reveal some of the great dilemmas faced by governments trying to run an economy - whether to save or spend, control inflation, regulate trade, fix exchange rates, or just leave everyone to get on with it and not intervene. You'll learn why Adam Smith put such a high price on free markets, how Keynes found a bold new way to reduce unemployment, and what economists went on to discover about the impact of policy on people's and businesses' behaviour - which may not always be entirely rational...

Video
15 mins

Society, Politics & Law 

60-Second Adventures in Economics

Ever shaken an invisible hand? Been flattened by a falling market? Or wondered what took the bend out of Phillips' curve? David Mitchell helps reveal some of the great dilemmas faced by governments trying to run an economy - whether to save or spend, control inflation, regulate trade, fix exchange rates, or just leave everyone to get on with it and not intervene. You'll learn why Adam Smith put such a high price on free markets, how Keynes found a bold new way to reduce unemployment, and what economists went on to discover about the impact of policy on people's and businesses' behaviour - which may not always be entirely rational...

Video
15 mins
Making manufacturing motor Creative commons image Icon Wigwam Jones under CC-BY-NC-ND licence under Creative-Commons license article icon

Society, Politics & Law 

Making manufacturing motor

Using the motor industry as an example, Leslie Budd considers the role of manufacturing during the recession.

Article
Why politicians are condemned to axe not tax Copyrighted image Icon Copyright: Dbrus | Dreamstime.com article icon

Society, Politics & Law 

Why politicians are condemned to axe not tax

Alan Shipman, lecturer in economics at The Open University, explores why politicians, regardless who's voted in, are condemned to axe not tax

Article
Economics explains discrimination in the labour market Copyrighted image Icon Copyright: Used with permission free course icon Level 3 icon

Society, Politics & Law 

Economics explains discrimination in the labour market

Discrimination in the labour market exists in many forms: the 'glass ceiling', ageism, racism, and so on. This free course, Economics explains discrimination in the labour market, will help you look at this problem from a new perspective: through economics. You will learn how economists have tried to understand what drives this distortion of the labour market and why women and those from minority ethnic groups seem to suffer the most.

Free course
8 hrs
Money’s Second Life? Creative commons image Icon Anil Mohabir under CC-BY-SA licence under Creative-Commons license article icon

Society, Politics & Law 

Money’s Second Life?

Our increasingly virtualised world has seen music switch from physical formats to digital downloads. Should money also go digital - and if it does, would it necessarily be for the best?

Article
Risk will return Copyrighted image Icon Copyright: Paul Lampard | Dreamstime.com article icon

Society, Politics & Law 

Risk will return

Is it too much to expect that the new financial system will be fundamentally less accident-prone than the old?

Article
Evan Davis on... the WalMart effect Copyrighted image Icon Copyright: Simon Budgen video icon

Society, Politics & Law 

Evan Davis on... the WalMart effect

After The Bottom Line looked at WalMart, Evan Davis was keen to find out what a declining economy has done to the WalMart effect.

Video
5 mins