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The Invisible Hand Metaphor


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A very helpful metaphor comes from Adam Smith.

The guy who wrote, "The Wealth of Nations," way back in 1776.

The metaphor is one that is almost always misunderstood.

It describes how pricing works in a relatively free economy.

How people only need to know the price of something, and everything else will kind of fall into place.

For example, suppose you sell burgers.

You've got a decent burger restaurant and have a decent stream of customers.

But you've noticed that in the past couple months, the price of ground beef has been slowly rising.

This would cause you to look for other sources.

Which you would do.

You'd find other sources, and they'd be cheap, and you'd be back in business.

Or suppose you were THINKING about getting into the burger business.

You did some calculations, and you figured you could put together and sell a burger for $3 at your costs.

Which would mean that if you could sell each burger for $4, you'd be in good shape.

The problems was that the going rate for burgers was only $3.50.

Not quite enough for you to make a profit.

But then you started seeing reports on the news about the price of burgers skyrocketing.

People were paying $5 and $6 for a burger.

You checked with your people, and you could still make them for $3 and sell them for $4.

You get in there, and make a killing.

In any of these examples, nobody needs to know WHY the price is what it is.

Only that it's going up or down.

From a consumer standpoint, this is much easier to see.

Suppose you loved yourself a good burger.

But only if they were LESS than $5.

So you see the news, about how prices of burgers are dropping.

The price of the average burger is only $2.

You don't need to know why.

All you need to know is that you love burgers, and they are now selling for $2.

So you get out there and get some.

All this is what Adam Smith referred to as the "Invisible Hand."

The fact that all everybody, buyers, sellers, potential buyers, potential sellers, need to know is the price.

And just knowing the price will slightly alter everybody's behavior.

Even if nobody speaks the same language.

This is who goods can flow around the world.

Goods flow one way, money flows the other.

Money to Earth is like blood to your body.

Unfortunately, money is a mystery to most people.

A confusing mystery.

But if you understand money, you can get in the game.

And get some.

Get Started:


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