Question

Adam Smith’s Invisible Hand concept favors a Laissez-Faire Capitalism approach. Describe the approach and its limitations. What is the role of government that supports this approach? Compare and contrast to the Republican & Democratic positions on government participation. Give examples

Answer 1

Adam Smith's invisible hand theory forms the basis of laissez faire philosophy which promotes the Capitalist approach of government non intervention in the economy. It says that government intervention in the market is not necessary and demand changes will lead to price adjustment without interference by government. With minimum government intervention, the markets will function at the optimal level.However Laissez faire approach comes with drawback the main being that it creates inequality in the income. As Adam Smith said monopolies will be created .higher prices will be charged,and workers will be paid low wages.Another limitation is that it will fail to represent the interest of the entire society and may only represent the rich class.

The role of government according to this approach is that the less the government is involved in the economy , the business in the economy will be better and society will gain.Laissez faire ie non intervention by government , is a very important part in free market Capitalism.

According to Republicans ,a small government with less responsibilities and less interference is better .Democrats believe that government should play a strong role and interfere in public affairs.This means making rules and regulations for business and health care.Both the parties promote different roles of government .The two parties differ on the spheres of our lives in which government is involved . As for eg-Democrats regulate economic and business and Republicans try to control personal relation and individual morals.