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
Why has the welfare cap become so complex? Creative commons image Icon CAFOD under CC-BY-NC-ND licence under Creative-Commons license article icon

Society, Politics & Law 

Why has the welfare cap become so complex?

George Osborne's changes to his welfare cap in the July 2015 budget have made a simple measure almost too complex, say Christine Whitehead and Emma Sagor

Article
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
Unaltered questions – and a worrying change of answers Copyrighted image Icon Copyright: Michel Loiselle | Dreamstime.com article icon

Society, Politics & Law 

Unaltered questions – and a worrying change of answers

In June 2013, the UK is hosting a major gathering of world leaders as they aim to map out the path to economic recovery.

Article
What is the 2015 Autumn Statement all about? Creative commons image Icon Mrgarethm under CC-BY licence under Creative-Commons license article icon

Society, Politics & Law 

What is the 2015 Autumn Statement all about?

The OU's Alan Shipman offers a guide to the things to watch for when George Osborne presents his autumn statement this Wednesday.

Article
Financial wizardry? Creative commons image Icon By altogetherfool via Flickr under Creative Commons licence under Creative-Commons license article icon

Society, Politics & Law 

Financial wizardry?

Alan Shipman, the Open University's lecturer in economics, responds to the October 2010 Spending Review

Article
Leslie Budd on... the Eurozone Copyrighted image Icon Copyright: photos.com audio icon

Society, Politics & Law 

Leslie Budd on... the Eurozone

Has the Greek debt crisis exposed flaws in the euro economy system? Leslie Budd examines the consequences of a currency crisis and the knock-on effects of cuts in public expenditure.

Audio
5 mins