Failures of the 'Invisible Hand'

Forum for Social Economics, Vol. 45, Iss. 1, 2016

27 Pages Posted: 19 Jul 2013 Last revised: 23 Jul 2016

See all articles by Rafi Amir-ud-Din

Rafi Amir-ud-Din

International Islamic University, Islamabad

Asad Zaman

Al-Nafi; Akhuwat University

Date Written: July 15, 2013


The introduction of an economics textbook by Manikiw quotes Adam Smith regarding the invisible hand and deduces the following claims: 1. Participants in market economies are motivated by self-interest. (SI) 2. Decentralized market economies work very well, and maximize the welfare of society as a whole. (FM: free markets) 3. The reason for excellent functioning of decentralized market economies is that all participants are motivated by self-interest. This self-interest works better than love and kindness in terms of promoting social welfare. (GG: greed is good) 4. The principles listed above were summarized in the concept of the “Invisible Hand” by Adam Smith. (AS) Manikiw writes that these ideas remain central to modern economics. This paper proves that all four of these central claims are wrong.

Keywords: invisible hand, market economy, traditional society, East Asian financial crisis, trade barriers

JEL Classification: A13, B41

Suggested Citation

Amir-ud-Din, Rafi and Zaman, Asad, Failures of the 'Invisible Hand' (July 15, 2013). Forum for Social Economics, Vol. 45, Iss. 1, 2016, Available at SSRN: or

Rafi Amir-ud-Din

International Islamic University, Islamabad ( email )

PO Box 1243
Islamabad, 44000

Asad Zaman (Contact Author)

Al-Nafi ( email )

64 Fullerton Crecent
Markham, Ontario L35 3G5

Akhuwat University ( email )

Ferozepur Road
Kasur, Punjab 55110
55110 (Fax)


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