1776 - The Wealth of Nations

Adam Smith

In his 1776 landmark book, The Wealth of Nations,1 Adam Smith asserted that countries that embrace free markets would prosper while others would not. His assertion was illustrated with the visual image of the invisible hand representing free market forces. Smith believed that individuals who acted in their own self-interest would benefit society as a whole. By allowing buyers and sellers to set prices, a free market economy would ensure the allocation of resources in the most efficient manner. Similarly, index investing is based on the idea that markets work, and that market prices constantly change to reflect current information and opinions. Smith believed that “by pursuing his own interest, he frequently promotes that of the society more effectively than when he really intends to promote it,” hence the invisible hand.

    -1 Adam Smith, Wealth of Nations (Oxford: Oxford University Press, 1993)
Step 2Adam SmithWealth of Nations