Is there an invisible hand that controls us?

The Invisible Hand (Intervention of God) first appeared in Adam Smith a famous Scottish economist works “The Wealth of Nations” and “The Theory of Moral Sentiments” which is a concept that focuses on how simply a market can operate without any jurisdiction or government and the people contribute to a healthy economy by acting with their own interests in mind.

The invisible hand’s automatic pricing and distribution mechanism in economy interacts directly or indirectly with top to down planning authorities and creates an idea that specializes in production, leading into a web of mutual interdependencies of self-interested individuals to produce what is socially necessary and beneficial to all. This theory not only bases capitalism but also aligns with the theory of laissez-faire economics, where the market finds equilibrium through the people engaging in it instead of through the intervention of government or other governing bodies. The key ideas this theory brings light to are:

• Voluntary trades to produce unintentional and widespread benefits in a free market.

• Mutual benefits compared to a planned, regulated economy.

A Former Fed Chair Ben Bernanke explained "market-based approach is regulation by the invisible hand" which "aims to align the incentives of market participants with the objectives of the regulator.”

Invisible hand is an unseen force that controls the free market and help achieve equilibrium with the help of individuals. One of the famous examples is introduced by the economist Richard Cantillon which helps us understand how converting a single real estate into multiple lease units increases the overall production. This theory by Adam Smith provides us with the insights and examines how people make decisions relating to money. For example, a bakery sells its good at an affordable rate to earn profit, creating a chain of supply and demand among the vendors and improving the market equilibrium while the consumer gets good value for their purchase in a competitive market.

As a passive process that occurs in the background of economics, the invisible hand isn't a practical process that requires implementation or management to operate. The invisible hand concept suggests that consumers are rational in making economic decisions, leading to balance within the economy as it stands as a foundational element in rational choice theory.

This metaphor has probably been the most proposition-uncontroversial theory in the history of economics. But nowadays, it’s almost impossible to talk about economics without invoking Adam Smith’s concepts such as division of labor and the invisible hand which are mostly taken for granted by the society so far. Yet, at the time of his writing his ideas went beyond an economics. But imagination. Smith idealized how to advance wellbeing and prosperity at a time of great change. The Industrial Revolution was ushering in new technologies that would revolutionize the nature of work, create winners and losers, and potentially transform society. Today we might find ourselves at the same inflection point, new technologies such as generative artificial intelligence are emerging and redefining an individual’s work and can transform the lives in an extraordinary way. The practical way of finance had outgrown the theories laid down as their foundation long time back. Nowadays, the current financial situations have a very unpredictable and uncertain behavior that keeps on changing with time is the “invisible hand” even relevant in this modern era? Adam Smith never stated which kind of hand was guiding the free market, all we know is that it was invisible. Could artificial intelligence be the invisible hand that guides this modern era’s free market?

If we follow this concept of thought, artificial intelligence possesses the ability to overcome the flaws of humans and learn from it in a certain way. The future that Adam Smith never saw and the one we are living in, can witness a drastic change if AI guides us in the field of finance like many other. We could very well witness the possibility of finance of becoming utilitarian, as opposed to filling the pockets of a privileged few. Somewhere along the future we might be able to acknowledge what would be called as “Financial Intelligence” or AI 2.0 which would have immense potential in wealth management, risk management, financial security, financial consulting, and blockchain. The financial intelligence could fulfill the fundamental goal of finance that is efficient allocation of capital.

Can Artificial Intelligence really bring out what invisible hand is supposed to do?

Possibly the AI 3.0, which might entail less human intervention, can provide greater value from AI in the field of finance.On the other hand we must not underestimate the power of AI to minic the human thinking and it’s adapt way to learn. AI could be as disruptive as the Industrial Revolution was in Adam Smith’s time.Writing on the brink of Industrial Revolution,Adam Smith hardly have foreseen the future that we live in. Now, we may once again be on the brink of technological transformations we can’t foresee.Seeing the parallels between Adam Smith’s time and ours,

Will the theory of Invisible Hand continue to be a disputable subject to economists for years to come?

or

Will it emerge as a new power, “The Artificial Hand”?