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Morality, Competition, and the FirmThe Market Failures Approach to Business Ethics$
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Joseph Heath

Print publication date: 2014

Print ISBN-13: 9780199990481

Published to Oxford Scholarship Online: May 2015

DOI: 10.1093/acprof:osobl/9780199990481.001.0001

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The History of the Invisible Hand

The History of the Invisible Hand

(p.205) 8 The History of the Invisible Hand
Morality, Competition, and the Firm

Joseph Heath

Oxford University Press

This chapter examines the “invisible hand” theory proposed by Adam Smith. It explains how Smith uses the phrase as a description of unintended social benefits resulting from individual actions, and the way that markets promote cooperation. It enumerates two famous positions of the theory which became prevalent in different periods: the incentive argument, popularized by Emile Durkheim during the early twentieth century, which discusses how markets were superior to other institutional forms because they allowed society to economize on moral motivation; and therefore the market, proposed by Friedrich Hayek during the advent of large-scale bureaucratic organizations and centrally planned economies that consists of large multidivisional companies, which states that markets allow society to economize on knowledge. The chapter analyzes the history and development of these two different lines of thought, and shows how the various theories came together to provide the most sophisticated case for the market.

Keywords:   invisible hand, Adam Smith, unintended social benefits, Emile Durkheim, moral motivation, Friedrich Hayek, incentive argument, information argument

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