In the context of economic systems, what does the term "invisible hand" refer to?

The term "invisible hand" refers to the concept proposed by economist Adam Smith, which suggests that individuals' pursuit of their own self-interest in a free market leads to economic benefits for society as a whole. In an efficient market, individuals seeking to maximize their own profits and satisfaction inadvertently contribute to the overall economic welfare through their actions, such as producing goods and services that society needs. This process occurs without any central planning or government intervention, as prices and production are regulated by the natural laws of supply and demand.

The idea encompasses the belief that when people are allowed to operate freely in their economic pursuits, they will ultimately contribute to resource allocation and economic prosperity. This principle is foundational to capitalist economic theories that champion minimal government interference in markets, promoting the notion that such self-driven transactions result in the most beneficial outcomes for all.