Final answer:
According to Adam Smith, the 'invisible hand' of the market benefits society by ensuring that individuals, while pursuing their own interests, contribute to collective prosperity by supplying goods and services that are in demand, which leads to broader economic growth.
Step-by-step explanation:
According to Adam Smith, the benefit to society comes from the invisible hand of the marketplace guiding people when they make economic decisions. By pursuing their own self-interest and seeking to maximize their profit, individuals inadvertently produce the goods and services that are most needed by society, thus contributing to economic welfare and growth. To allow the invisible hand to work properly, Smith advocated for a reduction of tariffs and minimal governmental regulation, preferring a laissez-faire approach to the economy.
Adam Smith's work was grounded in the belief that rational choice theory guides people to understand their options and make choices aimed at achieving reasonable objectives. This 'selfishness' is considered beneficial, as the pursuit of individual gain leads to collective prosperity. The accumulation of capital in preindustrial societies, according to Smith, allowed for the emergence of the Industrial Revolution, elevating the quality of life in industrialized nations.
The invisible hand refers to an unseen force that helps balance supply and demand in a free market, ensuring the most efficient allocation of resources without direct intervention. This concept is a key element in Smith's arguments for capitalism and the distribution of wealth, reflecting a strong preference for free market economies.