Economic Systems & Popular Government

Given the openly competitive nature of a free market economy, individuals and firms work hard to maintain a competitive advantage by producing a uniquely desired good or service at a cost that is less than people are willing to pay for it. By doing so, individuals and firms can continue to earn profit. Those who are good at identifying market demand and meeting that demand more effectively and efficiently than competitors are rewarded economically through the profits they earn.

While it might seem detrimental to society's interests if all individuals based their decisions every day on their own private interests, Adam Smith argued that, once again, the invisible hand produces the best results when individuals are self-interested. Smith argued that each individual pursuing his or her own interests

. . . intends only his own gain, and he is in this case, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

In other words, Smith believed that society benefits more from a hard-working, productive, self-interested individual than it does even from someone who gives exorbitantly to charity. According to the theory, an individual who maximizes the amount of money in his or her own bank account will contribute to the good of society by expanding its wealth, providing wanted goods and services, creating jobs, and spending money on the goods and services produced by others.