Sunday, March 30, 2008

Adam Smith: "The Invisible Hand"

Adam Smith was an economic genius that lived in the late 1700s. He wrote a Book called "The Wealth of Nations" that explained how the "marketplace" had an "invisible hand" that controlled price. In order for the market to work correctly; the "invisible hand" had to be free of outside influences (monopolies, "dumping", legislation, etc.)

This "invisible hand" relies on two things to set price. One is SUPPLY, or the amount of something that is available to sell to the public and DEMAND, or, the amount the Public wants to buy.

The Supply side doesn't just look at the finished product; it looks at what went into making that product (labor, raw materials, etc.). If one of these things becomes unavailable or rare then it will effect price.

For example: The rarest element that has existed throughout most of recorded history is GOLD. You can take all the gold in the world and put it into a big pile and you would have a melted down cube about 21 feet high and about the size of a tennis court! That is not very much at all!

It takes 5 years to bring a gold mine into production. 5 Years! That means those that want "new gold" are going to have to wait until 2013 if they open a mine today!

70% of the world's gold was owned by the banks. The have dumped half of that into the marketplace....yet, gold continues to rise in value and has gone up almost 400% in the last 7 years!