What is the Invisible Hand in Economics in simple words
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“Better is the enemy of Good Enough”
Many people get by with Good Enough, but there are those who want Better. So, they try to find or create Better.
Consider Airplanes. The first airplanes went from here to there without killing you very often. Then people wanted airplanes that didn’t kill you so much and went places faster. This led to improvements in science, construction, metallurgy, and so on.
The pursuit of Better in a single field led to thousands of people working toward that goal by way of whatever they could contribute. This is the Invisible Hand working to inspire and coordinate (loosely) the actions of many toward a general purpose.
Economics isn’t just about money, it about the use of scarce resources. What constitutes “Better” and who decides?
In the 1930s the race was on to make more powerful AND reliable aircraft engines. Air cooled radial engines used cast cylinders with fins to dissipate the heat. It worked, but only up to a point, and then it melted. One manufacturer went from thick fins (casting) to thin fins by using saws to cut narrow gaps between the fins. More expensive? Yes. More reliable? Very much so!
Who decides? The customer. Many thick fin engines were still made for lower power applications. The thin fin ones went to the cutting edge type stuff, because there was a market for it.
The Invisible Hand moves toward where people (many or few) want to go.
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