The “invisible hand” was an insight proposed by Adam Smith in the Wealth of Nations …show more content…
Friedman addresses that although goods and services are produced in different places, with different religions and cultures, those factors will not stop transactions in the market. This is because the price mechanism promotes both parties’ self interest without conflict. In addition, the price mechanism better aids the buyer and the seller in the market without government interference in the process (1979: 13). The market is called the “free market” which means “people do whatever the market tells them to do” (Spice-Butcher 2015). Under the price mechanism, consumers do not need to know unnecessary information when they buy things and vendors will learn from the market important information for their manufacture and/or supply.
The Friedmans (1979: 14) state there are three functions of the price system acting in the market. The three functions are “transmission of information”, “incentives” and “distribution of income”. Those functions are useful in explaining economic activities in the contemporary …show more content…
However, the price mechanism cannot convince me in regards to products such as scarce luxury goods – for example diamonds, as “most players have decided that ‘blood’ diamonds have no place in a free market” (Chou 2015). In addition, the price system will not be able to properly transmit information in a monopoly market unless the government interferes. Finally, the price system’s “incentive” will not work unless it is reflected in employees’ salaries. Thus, the theory may need to be examined more in regards to scarce resources and different types of market (e.g. monopoly or