Glamor Economics

Chapter 17

Chapter 3 Section 4 An "Invisible Hand"—Market Coordination Mechanism

In economics, the market is often referred to as the "invisible hand".Many economic activities around us are inseparable from the regulation of this "invisible hand".

The "invisible hand" is a British economist Adam?Smith proposed in The Wealth of Nations.The original meaning is that individuals only consider their own interests in economic life and are driven by the "invisible hand", that is, through the division of labor and the role of the market, the goal of national prosperity can be achieved.Later, the "invisible hand" became a metaphor for the perfect competition model of capitalism.The main features of this model are private ownership, everyone for himself, the freedom to obtain market information, free competition, and the government does not need to intervene in economic activities.Adam?In The Wealth of Nations, Smith described the process of the "invisible hand" in more detail:

"The quantity brought to market of each commodity will naturally adapt itself to the effective demand. For the advantage of all who supply the market with commodities by employment of land, labor, or capital is that the quantity of the commodity which does not exceed the effective demand; Favorable. If the quantity of a commodity in the market should ever exceed its effective demand, some part of its price must fall below its natural rate. If the fall is rent, the interest of the landlords will at once prompt them to withdraw a part of the land; if The fall is wages or profits, and the interest of the laborer or employer will prompt them to withdraw some part of their labor or capital from their original employment. The quantity of the commodity on the market will then soon be just sufficient to supply its effective demand, and all components of the price will soon rise to their natural level, and the whole price again agrees with the natural price."

"Conversely, if the quantity of a commodity in the market is insufficient to supply its effective demand, some part of its price must rise above its natural rate. If the part of the rise is rent, the interests of all other landlords will naturally prompt them to prepare more land for the production of this commodity; and if wages and profits are part of the rise, the interest of all other laborers or merchants will at once prompt them to employ more labor or stock in producing this commodity and bringing it to market. , the quantity of commodities on the market soon fully supplies its effective demand. All the constituent parts of the price soon fall to their natural levels, and the whole price again agrees with the natural price."

Under normal circumstances, the market will maintain its healthy operation with built-in mechanisms.These mechanisms are like an "invisible hand", secretly controlling everyone to consciously operate in accordance with the laws of the market.Behind the seemingly chaotic market activities, there are rules of market activities, and market players need to follow the order of market activities, otherwise they will be ruthlessly expelled by the market.

1. The principle of voluntariness
The principle of voluntariness is the basic principle of market transactions.Forced buying and strong selling, and "matching" sales are against the principle of voluntary trading. "Matching" sales is a sales behavior in which sellers take advantage of the shortage of certain products to force consumers to buy inferior products, which is a disguised form of strong selling.

The implementation of the principle of voluntariness is based on the fact that both parties are different stakeholders with different starting points and wishes, so that any transaction must be based on the principle of voluntariness, and the terms of the transaction should be acceptable to both parties, and one party cannot be subdued to the wishes of the other party.

2. The principle of equality
Equality is a general feature of a market economy and an important principle of market transactions.Equality means that in the commodity service market, although both parties to the transaction appear as buyers and sellers in different identities, they are all market players with equal status and equal opportunities. .

3. Principle of fairness
Fairness is the soul of market transactions and the touchstone to measure whether market transactions are orderly and regulated.Fair behavior refers to clearly marked prices in the transaction, the scale is accurate, and there is no deceit. However, such phenomena as lack of weight, fraud, and black market transactions violate the principles of fair market transactions, and the interests of consumers will be damaged. Even the lives of consumers can be compromised.Fair market transactions—Once they are destroyed, various contradictions and disputes will continue to emerge.

The principle of fairness is to protect consumers as the weak.In the course of the transaction, the operator can use the place, equipment and tools he owns to seek illegitimate benefits for himself.Although the transaction process appears to be "voluntary" and "equal", it is actually an exchange of unequal value, which constitutes a violation of the rights and interests of consumers and has caused unfair consequences.

4. The principle of good faith
Honesty and credit are the basic spirit of modern market trading activities.Adhering to the trading principle of honesty and credit, in the commodity service market, it is not only the morality of sellers, but the morality that both sellers and consumers should have.

Adam?Smith once said that, on the whole, businessmen are more trustworthy than diplomats.His judgment is based on repeated transactions, honesty and trustworthiness.He points out that diplomats frequently violate treaties because treaties are not made very often.Consequently, the benefits of breach of contract often outweigh the benefits of complying with treaty obligations.

[links to related words]

Market transaction principles The rules and order that must be followed in market transaction activities.The principles of market transactions mainly include voluntariness, equality, fairness, and good faith.They regulate the transaction methods and transaction behaviors of buyers and sellers in the market from different aspects.

(End of this chapter)