Plain Sense Economics

Early in our Principles of Economics courses we introduce the simple, competitive market, which has many buyers, many sellers, no barriers to entry, reasonably full information, and no government intervention. We also explain how Adam Smith, in his book Wealth of Nations, preferred the market’s ability to establish a new equilibrium as if guided by an invisible hand. The key to Smith’s description was that buyers, acting in their own self-interest, and sellers, acting in their own self-interest, would reach an outcome that was better for society than something conjured up by government.

Via Greg Mankiw’s blog, I found this more nuanced discussion on the Invisible Hand by Robert Frank. Frank is a co-author, along with Federal Reserve Board Chairman Ben Bernanke, of our current textbook.