Introduction The concept of "political economy" was formed and became an interesting subject for many economists to research for long time ago.
In many different economic conceptions, political economy has important roles because it expresses the face of each society through the interaction between economy and politics. According to Government and Social Development Resource Center (2008), the political economy is the economy related to the interaction between the economic and the political aspects of a society. In the eighteenth century, Europe entered the industrial revolution, capital accumulation.The mode of production changes made economic theory “ Mercantilism” became out of date that lead to the formation of Political Economy. It is the scientific foundation of today's market economy.
A pioneer in the delegate system construction was Adam Smith. The theory “invisible hands” of Adam Smith is one of the famous examples that have a strong influence to the development of political economy. This essay will identify the main theatrical ideas of Smith and discuss about some advantages and disadvantage of this process in real life case.Understanding TheoryAdam Smith is regarded as the father of economics; his writings have special value because of its enormous influence.
According to Plus Magazine (2001): “"invisible hand" explanations are invoked to explain all sorts of phenomena, from scientific progress to environmental degradation”. Basically, Adam Smith states that the invisible hand is formed by a combination of self-interest, competition, demand and supply has the ability to regulate social resources, Ashraf, Camerer and Loewenstein (2005). If it is understood in a simpler way, with each person, when they engage in economic activities, people want to get more profits, higher sales because it means that their economy will be improved, their life also becomes prosperous. Those wishes originate from the selfishness, the demand to get the highest profits of each person, which is one of the most basic instincts.
However, these individual benefits tend to enhance the advantages for the whole community through the "invisible hand “. According to Bishop (1995):” self-interest is the main motivator of human economic activity”. In addition, "invisible hand" is tries to reduce the intervention from the government with the business of the community. Therefore, it motivated the development of “Free Market “. Free market is the place where prices are based on the features: “supply and demand", in this market, there no central authority setting social priorities and each individual going his own ways, Samuels and Medema (2005).
The key point of the theory "invisible hand “is that it minimize the interference of the government to the community economic activities. According to Smith (2005), the wealth of each country achieved not by the strict regulations of the state, but because of the free enterprise.Therefore, the theory “Invisible hand” promotes the development of “Free Market “. According to Bishop (1995): “The invisible hand of the free market will transform the individual's pursuit of gain into the general utility of society “.
Without government intervention, individuals can freely trade investment with the same purpose is to maximize the personal benefits that they desire to achieve. Each contribution of each individual will be a great contribution to society. Therefore, the advantage that the "invisible hand” bring to is to make society become wealthy without the interaction of government but by the individual contributions even though they do not know. According to Holcombe (2006, p.
189): “He, generally, indeed, neither intends to public interest, nor knows how much he is promoting it”.However, Invisible hand is just the theory that came from the idea of a person. Therefore, it also has disadvantages, especially with the modern society that has been changed year by year. According to Ahsan (2012, p 49): “Smith‘s invisible hand notion work only under certain condition”. Ahsan (2012) used the example of the worst financial crisis has happened to America in 1929 to demonstrate the inadequate that the theory “Invincible hand" has brought.
According to Ahsan (2012), the self-interest of the broker in the push up stock prices has made "bubble of mineral" exploded up to one of the first worst economic crisis of humanity. At that time, the personal benefit sunk the whole community; and brings them back to recession period. Thus, invisible hand has been replaced by the “visible hand “theory, which allows the government to interfere with the country economy, and control the crisis.ApplicationAt this present time, even though the economic system has been affected by the intervention of government, however, in the society of Vietnam, "invisible hand" is still present, and creates certain benefits for the country. This is the example of the theory "Invisible hand" is still being applied in Vietnam In the article: “Japan investment to increase”, Updated September, 15 2012, in VietNamNews, Vietnam and Japan are two countries that have close relationship and cooperate with each other in many aspects, such as political, economic and tourism.
Japan said that Vietnam is an attractive market with cheap labor friendly and abundant natural resources, besides that, with the desire to attract foreign investment, particularly Japan, Vietnam has built many modern industrial zones, try to modify policies that will help Japan can collaborate with Vietnam more easier, VietNamNews (2012).The key point of the “invisible hand” inside this collaboration is that it can create more jobs for Vietnam’s labor. Population rate of Vietnam is high so many part of the population are still unemployment. Therefore, the business expansion between Vietnam and Japan has opened up an opportunity for Vietnamese to have stable jobs that will have the unemployment rate also decreased.
In addition, according to VietNamNews (2012) in collaboration with Japan, the value of the products in Vietnam will become more valuable, more competitive with foreign economies, especially with some Asian countries such as Thailand, Indonesia and Malaysia. However, beside the advantages that Vietnam has received, the fact that the domestic business market of Vietnam will be divided and difficult to compete with Japan. While Japan has a strong capital, new equipment, modern facilities and machinery, Vietnam business has lower capital investment, do not have enough equipment and facilities to meet the production requirements of the market.ConclusionIn conclusion, this essay has pointed out the main idea of the theory "Invisible hand" of Adam Smith and its contribution to the society, especially in the 17th century. The theory "invisible hand" has opened a new chapter in the history of modern economics because this theory has respected and supported the freedom of the business during the period that the laws, draconian tax obstacles have become a prevention of growing economy.
However, every theory has its negative side. In some situations, many people use the theory of Adam smith to create the chaos in "demand and supplies" which leads to the inflation. "Thus, in a period that the economic crisis happening everywhere, the government intervention is necessary because only the "Visible hand" from the government can fix and control the vulnerabilities that "invisible hand" cannot be done. However, ignoring all the disadvantages of the theory, the “invisible hand” is still useful in some special cases. Therefore, people should appreciate with the achievements of the Adam Smith because he was a pioneer in the creation of freedom in business.