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Is the “invisible hand” still relevant?

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  • Stephen F. LeRoy

Abstract

The single most important proposition in economic theory, first stated by Adam Smith, is that competitive markets do a good job allocating resources. Vilfredo Pareto?s later formulation was more precise than Smith?s, and also highlighted the dependence of Smith?s proposition on assumptions that may not be satisfied in the real world. The financial crisis has spurred a debate about the proper balance between markets and government and prompted some scholars to question whether the conditions assumed by Smith and Pareto are accurate for modern economies.

Suggested Citation

  • Stephen F. LeRoy, 2010. "Is the “invisible hand” still relevant?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may3.
    • Handle: RePEc:fip:fedfel:y:2010:i:may3:n:2010-14
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