Adam Smith, a prominent economist and philosopher, is often associated with the concept of the

"Invisible Hand" and his ideas on economics as well as class conflict in society. He is best
known for his book "The Wealth of Nations," published in 1776, where he discussed the idea that
individuals pursuing their self-interest can unintentionally benefit society as a whole. In other
words, when people seek to maximize their profit or gain, they often end up benefiting society as
a whole by stimulating economic growth and efficiency. The invisible hand was not the
intentional design of any individual but was simply created by the systematic working out of
natural laws. This concept is a fundamental idea in classical economics and remains influential in
economic theory today.

Societies often have distinct social classes based on factors like wealth, income, occupation, and
social status. These classes can include the bourgeoisie (capitalist class), the proletariat (working
class), and sometimes the middle class. Class conflict arises from the differing interests and
objectives of these social classes such as individuals acting selfishly and harshly on their behalf
or on behalf of the class to which they belong.

Smith's Theories of History and Sociology

Smith's theory of history begins with the proposition that how humans produce and distribute the
material needs necessary for life is the most important determinant of the social institutions of
any society as well as personal and class relationships among its members. Smith accepted that
there were four particular stages of financial and social improvement: hunting, pasturage,
agriculture, and commerce. At each stage, the process of production and supply of economic
goods in society plays a key role in understanding social institutions and government.

Hunting

Smith described the hunting stage as the lowest and harshest form of society, and this stage was
seen among the early inhabitants of North America. In economic and anthropological terms, the
"hunting stage" refers to a prehistoric or early stage of human economic development when
societies primarily relied on hunting and gathering for their subsistence. During this stage,
people lived as nomadic hunter-gatherers, relying on the natural environment for food, clothing,
and shelter.
Key characteristics of the hunting stage in the economy include:

1) Hunting and Gathering: People obtained their food by hunting animals, fishing,
and gathering wild plants, fruits, and nuts. They did not engage in agriculture or animal
husbandry.
2) Nomadic Lifestyle: Hunter-gatherer societies were often nomadic, moving from
one area to another in search of food and resources. They typically didn't build permanent
settlements.

Pasturage

The next step was pasturage which gave rise to more advanced societies and was found among
the Tartars and the Arabs. At this stage, the economy supported social lives bounded in groups.
Production depended on domesticated animals, and their maintenance required a nomadic
lifestyle. In such societies, we first see how wealth was consolidated through herding. Cattle
ownership was the first form of wealth acquisition. And its institutional security becomes
imperative. Smith then went on to search for conditions or causes that "give men . . . superiority
over the greater part of their brethren." He analyzed several special conditions that led to the
institutionalized, enforced subjugation of some people in different social settings, but he
considered one important situation common to all: "Civil government, so far as it is established
for the security of property, is the rich against the poor. Set up to protect or against those who
have no property.

Agriculture

The third social stage was agriculture, which was more common in the feudal economy of
medieval Western Europe. At this stage, the society began to settle permanently in a particular
area and agriculture was the most important economic component at that time. Land ownership
became a very important determinant of class division based on privilege and power. During this
period the coarse part of all land was concentrated in the hands of a few proprietors. Ownership
of large estates was at the centre of social and political power. Therefore, society was divided
between the rulers and the exploited. The ruling class was assumed to be aristocratic by birth.
The preservation of tradition through generations prevented many rulers from dividing their
property and maintained their prestige in society. According to Smith, two characteristics of
agricultural society were very important. One is that very few of the wealthy could make proper
use of their wealth. The second is that this kind of economic means was conducive to the
absolute domination of the wealthy while the majority of the people had insufficient rights and
freedoms. According to Smith, two of the most important improvements in society's transition to
a commercial form were the expansion of rights and the increase in freedom of most producers.

Commerce

In Smith's view, the rise of European cities led to the establishment of commercial societies in
social development. These cities were seen as dependent on foreign trade and, to a large extent,
economically independent of the medieval agrarian economy. Medieval lords allowed
independent towns because they received rents and other benefits from the towns. A new
political environment was created within the cities where they enjoyed more freedom than
before. This greater freedom and security has given rise to people's desire to accumulate
material wealth. Smith believed that nature created an illusion in humans that their happiness
came primarily from material possessions. However, he was impressed by the economic and
social impact of the desire for personal gain. Smith stated that the growth of cities transformed
rural agriculture. where feudal lords could barter their agricultural surplus produce.

It was Smith's belief that, This was because medieval agriculture had become so inefficient. The
owners' desire to buy more goods led them to increase efficiency by firing redundant tenants.
Increasing freedom and security for the majority of producers also led to the characteristic that
Smith considered most important about capitalism, as landowners strived to increase economic
efficiency. Smith argued that "a man who can acquire no property can have no other interest
than to eat as much as he can, to work as little.
In capitalist societies, Smith sees property ownership as the basis of class division. Property
ownership determines one's source of personal income and this source of income serves as a
determinant of social class. However, in a market society, there are no separate classes of
owners of land and capital. It is a society where workers can control their means of production.
Smith did not doubt that labour alone could add value or wealth. The annual output of land and
labour may depend on an increase in the number of productive labourers or on an increase in the
productivity of those already employed. But when a small class comes to own the means of
production, they gain power through property rights and encourage workers not to work without
a share of production. The determination of labour's common wage usually depended on the
agreement of two parties whose interests were by no means identical. The worker wanted to get
the maximum and the master wanted to be paid as little as possible. But this struggle was not
equal, according to Smith, the capitalists were always ahead because their power and dominance
were more. Smith mentioned three reasons –

1. Their greater wealth

2. Ability to distort or control public opinion
3. Innumerable advantages of getting the government to their side.

Through this, Smith highlights the importance of class conflict between capitalists and workers.
He cites ownership of land and capital as the main basis of class conflict.

Class Conflict and Social Harmony

Smith knew that selfish and acquisitive motives for acquiring things caused disagreements and
conflicts between individuals and groups of people. However, in the social setting of competitive
capitalism, these conflicts seemed only surface-level and not truly genuine. The invisible hand
naturally solves small disagreements in a way that makes people happy. Supporters of the labour
theory of value believe that class conflict is very important for understanding capitalism. On the
other hand, the utility theory of value believes that social harmony is fundamental and will
ultimately lead to a version of Smith's invisible hand argument.

Smith's analysis comes from his perspective that the value of something is determined by the
amount of work put into it. So, he believed that labour created value and that workers had to
share what they made with two classes of people who didn't create anything but owned property.
These property owners had the right to profit from the work of others. He also said that the
government protecting property rights was just protecting the rich from the poor

Smith accepted that wages were decided by a financial, social, and political battle between
workers and capitalists, in which the capitalists continuously had the upper hand. He was aware
that businessmen use all kinds of means to avoid competition and ensure monopoly, as is
evidenced by the two following quotations:

1. Individuals of the same trade rarely meet together, even for happiness and
preoccupation, but the discussion closes in a trick against the people, or in a few
contraptions to raise prices.

2. The interest of the merchants, be that as it may, in any specific department of

manufacturers, is continuously in a few regards diverse from people, and indeed inverse
to, that of the open... To contact the competition is continuously the intrigued of
merchants... But to contract the competition must continuously be against ... [the interface
of the open], and can serve as it were to empower the merchants, by raising their benefits
over what they normally would be, to exact, for their possess advantage, a foolish charge
upon the rest of their fellow-citizens

Analyzing the effects of capitalism, the following two quotations are given:

Differences in natural talent between different people are much smaller than we can realize. The
difference between the most dissimilar characters, between a philosopher and a street porter, for
example, does not arise so much from nature as from habit, custom, and education. When one
comes into the world and is six or eight years old, they are all the same. And neither their
parents nor their close mates understood the significant difference. Soon they were engaged in
different professions.
In the advancement of the division of labour, the employment of a large proportion of those who
survive is confined to labourers, i.e. the common people. A man who spends his whole life doing
a few simple things whose effects are always the same. And practising his invention to find
ways to remove difficulties that will never happen. He naturally loses the habit of such hard
work and is generally foolish as if he did not know it was possible for a man to do it. The pull of
his mind renders him.

For such workers, the invisible hand and the "obvious and simple mechanism of natural
freedom" seem far away. Moreover, when one considers that government exists to "protect the
rich" by dominating poor workers with their poor wage rates, and capitalists using all means at
their disposal. To protect government and monopolies, one wonders how Smith hopes to achieve
this proposed "system of natural liberty" in which government had only three duties and in which
the Invisible Hand directed all acquisitive actions into a mutually beneficial whole.

Criticism

Market failure due to the "invisible hand" refers to situations where the self-interested actions of
individuals in a free market do not lead to an efficient or desirable outcome for society as a
whole. The "invisible hand" is a concept coined by economist Adam Smith, suggesting that
individuals pursuing their self-interest can unintentionally contribute to the greater good of
society. However, there are instances where this doesn't hold:

1. Externalities: When the actions of individuals or firms impose costs or benefits

on others that are not reflected in market prices, it leads to externalities. For example,
pollution is a negative externality, as the polluter doesn't consider the cost it imposes on
others.
2. Public Goods: Some goods, like clean air or national defence, are considered
public goods. The market often fails to provide these efficiently because individuals can
benefit from them without paying, leading to under-provision.
3. Monopoly Power: When a single firm gains significant market power, it can set
prices higher than in a competitive market, reducing consumer welfare.
 4. Information Asymmetry: If one party in a transaction has more information than
the other, it can lead to market failure. For instance, in the case of used cars, sellers may
have more information about the car's condition, leading to the "lemons" problem.
5. Inequality: Markets can sometimes exacerbate income inequality, as those with
more resources can further increase their wealth, leaving others at a disadvantage.

To address these market failures, government intervention through regulation, taxation,

subsidies, or public provision of goods and services may be necessary to ensure a more efficient
and equitable outcome.