The central argument given by Adam Smith for the concept of "invisible hand" was:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Society benefits when individuals pursue their own self interest in the market
Option (1) Market is equivalent to the economy — Incorrect. This is not what the ‘invisible hand’ argues. The idea is about how the market works: millions of individual exchanges, none of them meant to create a system, automatically create a functioning and ordered system that benefits society. Treating the market and the whole economy as one and the same is not its point.
Option (2) Economics is legally and politically embedded — Incorrect. That economies are ‘embedded’ in society is the sociologists’ view, which studies economic institutions within the larger social framework. Smith’s line of thought led the other way, to modern economics, which studies the economy as a separate part of society working by its own laws.
Option (3) Society benefits when individuals pursue their own self interest in the market — Correct. Smith argued that the market economy is a series of individual exchanges which automatically create an ordered system, though no one intends it. Each person looks only to his or her own self-interest, yet an unseen force, the ‘invisible hand’, converts what is good for each individual into what is good for society. Society as a whole benefits because this pursuit of self-interest stimulates the economy and creates more wealth, and so Smith supported a free market (laissez-faire).
Option (4) Markets are political institutions that are constructed in power — Incorrect. Smith saw the market as a self-regulating system of exchanges. It is the sociologists who see markets as social institutions constructed in culturally specific ways, often controlled by particular social groups or classes.
Note: The lines on Adam Smith’s ‘invisible hand’ and the free market, in the section ‘Sociological Perspectives on Markets and the Economy’ of the chapter ‘The Market as a Social Institution’, were there in the pre-rationalised NCERT, which NTA followed in 2023. This portion has been deleted from the NCERT book (2025-26), though the chapter and its account of Adam Smith and the market economy are still there.
NCERT (2025-26): “4.1 Sociological Perspectives on Markets … To answer this question, we need to go back briefly to eighteenth century England and the beginnings of modern economics, which at that time was called ‘political economy’. The most famous of the early political economists was Adam Smith, who in his book, The Wealth of Nations, attempted to understand the market economy that was just emerging at that time.…” NCERT (Pre-rationalised): “4.1 Sociological Perspectives on Markets and the Economy … In this sense, there seems to be some sort of an unseen force at work that converts what is good for each individual into what is good for society. This unseen force was called ‘the invisible hand’ by Adam Smith. Thus, Smith argued that the capitalist economy is driven by individual self-interest, and works best when individual buyers and sellers make rational decisions that serve their own interests. Smith used the idea of the ‘invisible hand’ to argue that society overall benefits when individuals pursue their own self-interest in the market, because it stimulates the economy and creates more wealth. For this reason, Smith supported the idea of a ‘free market’, that is, a market free from all kinds of regulation whether by the state or otherwise. This economic philosophy was also given the name laissez-faire, a French phrase that means ‘leave alone’ or ‘let it be’.…” |