• 1.3: Capitalism and the Invisible Hand: Adam Smith

    ​​Adam Smith, Max Weber, Karl Marx, and Friedrich Engels were four key theorists and philosophers who discussed industrialization and economic change.

    Adam Smith (1723–1790), the Scottish economist who many consider the "father" of modern economics, coined the idea of the invisible hand, in which he described how changes in supply and demand for an item typically return to a state of economic equilibrium. When a shortage of a product occurs, businesses usually raise their prices to take advantage of the increased demand. The profit margin encourages other businesses to enter the market, increase production, and cure the shortage. When too many producers flood the market with increased supply, manufacturers are forced to lower the price of their products to get rid of their excess inventory and stay in business. Eventually, the competition among manufacturers achieves a market equilibrium or "natural price".