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The Two Faces of Adam Smith

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  • Vernon L. Smith

Abstract

Adam Smith's two major works are based on apparently contradictory themes in human nature: noncooperative self‐interest and other‐regarding sympathy. These views are not contradictory if we distinguish impersonal market exchange and personal exchange. Noncooperative behavior in the former maximizes the gains from exchange, the basis of specialization and wealth creation. Cooperative behavior in personal exchange is based on reciprocity—trading gifts, favors, and assistance across time—which maximizes the gains from social exchange. That people can be both cooperative and noncooperative is corroborated in laboratory experiments and is postulated to stem from a self‐interested propensity for exchange in markets and friendships.

Suggested Citation

  • Vernon L. Smith, 1998. "The Two Faces of Adam Smith," Southern Economic Journal, John Wiley & Sons, vol. 65(1), pages 1-19, July.
    • Handle: RePEc:wly:soecon:v:65:y:1998:i:1:p:1-19
    DOI: 10.1002/j.2325-8012.1998.tb00125.x
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    References listed on IDEAS

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    1. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    2. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages 285-300, October.
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    4. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    5. McCabe, Kevin A. & Rassenti, Stephen J. & Smith, Vernon L., 1998. "Reciprocity, Trust, and Payoff Privacy in Extensive Form Bargaining," Games and Economic Behavior, Elsevier, vol. 24(1-2), pages 10-24, July.
    6. Hoffman, Elizabeth & Spitzer, Matthew L, 1982. "The Coase Theorem: Some Experimental Tests," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 73-98, April.
    7. Shogren, Jason F., 1997. "Self-interest and equity in a bargaining tournament with non-linear payoffs," Journal of Economic Behavior & Organization, Elsevier, vol. 32(3), pages 383-394, March.
    8. Hartmut Thieme, 1997. "Lower Palaeolithic hunting spears from Germany," Nature, Nature, vol. 385(6619), pages 807-810, February.
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    4. Michael Carr & Philip Mellizo, 2022. "Production from One, Distribution to All? Examining Effort-Based Distributional Norms in a Controlled Lab Study," Review of Radical Political Economics, Union for Radical Political Economics, vol. 54(1), pages 44-58, March.
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    7. Cary A. Deck, 2001. "A Test of Game-Theoretic and Behavioral Models of Play in Exchange and Insurance Environments," American Economic Review, American Economic Association, vol. 91(5), pages 1546-1555, December.

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