The Invisible Hand Theory helps you understand ways that the market regulates itself, and how balance exists, even in a wild western scene full of crypto cowboys. 🤠
— an idea proposed by economist Adam Smith, to illustrate why self-interested decisions can turn out to benefit society as a whole.
As an example, while consumers would like to pay as little as possible for a bag of rice, the producers of this rice would love to get as much as they can. When these two interests combine, the invisible hand brings these two together, and a fair market price is established: a price that works for both consumers and producers.
The Invisible Hand intervened, as new demand dried up and the market started selling off, back to more reasonable levels. Dogecoin's value has since dropped over 90%, now trading at just over $0.065. Other critics argue that the theory oversimplifies economics, and that – contrary to what I described earlier – someone will not just go and bake bread, because of the cost of setting such an operation up. This critique becomes especially true when instead of bread, the item in the example becomes, let's say, high precision semiconductors.Ultimately, Adam Smith's theory is useful to learn more about why markets move the way they do — even if critics believe the theory is flawed.
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